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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACTS OF 1934.
For the fiscal year ended June 30, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________.
Commission file number 000-24487
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MIPS Technologies, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0322161
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1225 CHARLESTON ROAD, MOUNTAIN VIEW, CA 94043-1353
(Address of principal executive offices)
Registrants' telephone number, including area code: (650) 567-5000
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. |_|
Aggregate market value of the registrant's Common Stock held by
non-affiliates of the Registrant as of September 1, 1998 was approximately $94.0
million based upon the closing price reported for such date on the Nasdaq
National market. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of outstanding shares of the Registrant's Common Stock, $.001
par value, was 37,250,000 as of September 1, 1998.
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PART 1
Item 1. Business
General
On July 6, 1998 the Company completed its initial public offering (the
"Offering"). Prior to the Offering, the Company was a wholly owned subsidiary of
Silicon Graphics. In order to increase the focus of the MIPS Group on the design
and development of microprocessor applications dedicated to the embedded market,
in December 1997, Silicon Graphics initiated a plan to separate the business of
the MIPS Group from its other operations. In April 1998, the Board of Directors
of the Company approved a transaction, pursuant to which, Silicon Graphics
transferred to the Company the assets and liabilities related to the design and
development of microprocessor intellectual property for embedded market
applications (the "Separation"). Prior to the Separation, the Company's business
was conducted by Silicon Graphics primarily through its MIPS Group, a division
of Silicon Graphics. The Company's predecessor, MIPS Computer Systems, Inc., was
founded in 1984 and was engaged in the design and development of RISC
microprocessors for the computer systems and embedded markets. Silicon Graphics
adopted the MIPS architecture for its computer systems in 1988 and acquired MIPS
Computer Systems, Inc. in 1992. Following the acquisition, Silicon Graphics
continued the MIPS microprocessor business through its MIPS Group, which focused
primarily on the development of high-performance microprocessors for Silicon
Graphics' workstations and servers. Until the last few years, cost
considerations limited the broader use of these microprocessors. However, as the
cost to design and manufacture microprocessors based on the MIPS technology
decreased, the MIPS Group sought to penetrate the consumer market, both through
supporting and coordinating the efforts of the MIPS semiconductor partners and
by partnering with Nintendo Co., Ltd. ("Nintendo") in its design of the Nintendo
64 video game player and related cartridges.
The Company is a leading designer and developer of RISC-based
high-performance microprocessor intellectual property for embedded systems
applications. The Company has established a distribution channel for its
intellectual property by licensing its technology to key semiconductor partners.
Each of these partners possesses leading design and/or process technology and
can leverage a strong market position in strategic embedded markets. To date,
the MIPS RISC architecture has been used to create over 60 separate
microprocessor products. These microprocessor products have a cumulative
installed base of over 70 million units and have been embedded into a variety of
products such as video games, color printers and handheld personal computers.
The Company's semiconductor partners reported that approximately 47 million
units based on the Company's RISC architecture were shipped in fiscal year 1998.
The Company's technology focuses on providing cost-effective and
high-performance microprocessor and related designs for high-volume embedded
applications. The MIPS RISC architecture is flexible and allows semiconductor
manufacturers to integrate their intellectual property with the Company's
microprocessor and related designs to develop differentiated and innovative
products for a variety of embedded applications within demanding time-to-market
requirements. The advantages of the MIPS architecture relate primarily to
scalability of die size and performance. Products incorporating the MIPS
architecture range from disk drives using microprocessor cores with a die size
of less than two square millimeters to high-performance workstations using
microprocessors with a die size of 300 square millimeters. In addition, while
designed for high performance, the Company's RISC-based architectures have been
incorporated in low-power applications such as the Philips Velo and the NEC
MobilePro handheld personal computers. The MIPS architecture is designed around
upward compatible instruction sets that enable manufacturers developing products
across a broad range of price/performance points to use common support tools and
software.
The Company was incorporated in Delaware in June 1992. The Company has its
principal executive offices at 1225 Charleston Road, Mountain View, California
94043-1353, and its telephone number at that address is (650) 567-5000.
Industry Background
Rapid advances in semiconductor technology have enabled the development of
higher performance microprocessors at lower cost. As a result, it is now
cost-effective for system OEMs to embed these microprocessors into a wider range
of electronic products and systems, including a new generation of digital
consumer products. At the same time, improvements in semiconductor manufacturing
processes have enabled the integration of entire
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systems onto a single integrated circuit to create complex system-on-a-chip
solutions. However, design tool capabilities and the internal design resources
of semiconductor manufacturers and system OEMs have not kept pace with the
increase in the number of transistors that can be placed on a single chip.
Consequently, a significant and growing "design gap" for semiconductor designers
and manufacturers has developed. To address this "design gap," semiconductor
designers and manufacturers are increasingly licensing proven and reusable
intellectual property components such as microprocessor cores, memories and
logic blocks from third-party suppliers to create differentiated products and
reduce development costs and time-to-market. The availability of low-cost,
high-performance microprocessors and the development of system-on-a-chip
technology have contributed to the emergence and rapid growth of the market for
embedded systems, particularly advanced digital consumer products.
Embedded systems are broadly defined as microcontrollers and
microprocessors plus related software incorporated into devices other than
personal computers, workstations, servers, mainframes and minicomputers. Until
recently, this market was dominated by low-cost 4-, 8- and 16-bit
microcontrollers embedded primarily into low-cost, high-volume consumer products
such as home appliances, facsimile machines, printers, telephone answering
machines and various automobile systems. The use of higher performance 32- and
64-bit microprocessors was common in higher cost but lower volume applications
such as telecommunications switching equipment and data networking routers.
Although microcontrollers are adequate for basic system control functions, they
lack the performance and bandwidth capabilities to implement today's advanced
functions. Recently, however, the price of 32- and 64-bit microprocessors has
reached the point where it is now cost-effective to embed these solutions into
low-cost, high-volume digital consumer products.
Digital consumer products that incorporate high-performance microprocessors
and software can offer advanced functionality such as realistic 3-D graphics
rendering, digital audio and video, and communications and high-speed signal
processing. To meet the demands of the digital consumer products market, system
OEMs rely on semiconductor manufacturers to design and deliver critical
components within rigorous price and performance parameters. In order to supply
products for these markets, semiconductor suppliers are increasingly combining
their own intellectual property with that of third-party suppliers such as the
Company in the form of microprocessor cores and other functional blocks.
The MIPS Network
Through its network of semiconductor partners, independent software vendors
and system OEMs, the Company has developed the infrastructure to support its
architecture as a standard platform for the embedded market.
Semiconductor Partners. The Company currently has seven semiconductor
partners that develop, market and sell silicon solutions based on the MIPS RISC
microprocessor architecture. Because products incorporating the Company's
intellectual property are sold to system OEMs by its semiconductor partners (and
not directly by the Company), these partners operate as a value-added
distribution channel. Several of the Company's partners have had contracts with
the Company and its predecessors since prior to Silicon Graphics' acquisition of
MIPS Computer Systems, Inc. in 1992. The Company's current semiconductor
partners are Integrated Device Technology ("IDT"), LSI Logic Corporation ("LSI
Logic"), NEC Corporation ("NEC"), NKK Corporation ("NKK"), Philips Electronics
N.V. ("Philips"), Quantum Effect Design, Inc. ("QED") and Toshiba Corporation
("Toshiba"). Several of the Company's manufacturing partners have made
significant investments in MIPS technology and market development which has
resulted in multiple design teams around the world engaged in the development of
MIPS-based microprocessors and related designs. The Company's partners and their
associated design teams have developed a broad portfolio of microprocessors and
standard products based on the MIPS RISC architecture as well as application
specific extensions which can be licensed back to the Company and offered to its
other partners
Independent Software Vendors. The Company's RISC architecture is further
enabled by a variety of third-party independent software vendors that provide
operating systems and engineering development tools such as compilers, debuggers
and in-circuit emulation testers. Currently, these companies provide over 150
products in support of the Company's RISC architecture. This software support
allows system OEMs to design the MIPS microprocessor technology into their
products. Software operating systems developed by Microsoft, Wind River Systems,
Inc. and Integrated Systems Inc. are compatible with the Company's RISC
architecture.
System OEMs. Microprocessor products based on the Company's RISC
architecture are used by a variety of system OEMs in the embedded market. A
number of high-profile digital consumer products incorporate the Company's
RISC-based microprocessor intellectual property, including the Nintendo 64 and
Sony PlayStation
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video game systems, the Philips Velo and NEC MobilePro handheld personal
computers and the digital set-top boxes from Echostar and WebTV. The Company
participates in various sales and technical efforts directed to system OEMs and
has launched a promotional campaign aimed at increasing brand awareness of the
MIPS RISC architecture among system OEMs and software vendors.
Markets and Applications
Digital Consumer Products. Together with its existing semiconductor
manufacturing partners and their associated design teams, the Company seeks to
leverage the MIPS RISC architecture into solutions for a wide variety of
sophisticated, high-volume digital consumer products such as video game
products, handheld personal computers and set-top boxes. To date, the Company's
RISC-based microprocessors have been designed into many digital consumer
products, including the Nintendo 64 and Sony PlayStation video game systems.
Revenue related to the video game market presently accounts for a substantial
majority of the Company's total revenue, and such revenue is expected to
continue to account for a significant portion of the Company's total revenue for
at least the next several years.
Video Games. The market for video games, which represented the first
high-volume consumer application for 32- and 64-bit microprocessors,
accounted for approximately 30 million units in 1997, of which an estimated
90% used the Company's technology. The Company's key design wins in this
market include the Nintendo 64 video game system, which was introduced in
1996 and uses a MIPS R4300i microprocessor manufactured by NEC, and the
Sony PlayStation, which was introduced in 1994 and uses a MIPS R3000 class
embedded microprocessor developed by LSI Logic.
Set-Top Boxes. As digital transmission of video signals becomes more
widely utilized, the Company believes that the market for compatible
set-top boxes could represent an area of growth in the use of 32- and
64-bit microprocessors and related designs. The Company's key design wins
in this market include the set-top box used in WebTV's Internet appliance,
introduced in 1996, which uses a MIPS R4000 class microprocessor
manufactured by IDT. Echostar's Dish Network set-top box, introduced in
1996, uses a MIPS R3000 class microprocessor that is also manufactured by
IDT. General Instrument Corporation's DCT-5000+ advanced interactive
digital set-top terminal will also use a MIPS based product.
Handheld Personal Computers. While the market for handheld personal
computers has only recently begun to develop, the Company expects that this
market will continue to grow as these devices become more interactive with
desktop PCs. To date, the Company's RISC-based microprocessor designs have
been incorporated into products such as the Philips Velo and Sharp's
Mobilon, both of which use a MIPS R3000 class microprocessor developed by
Philips. In addition, NEC has incorporated a MIPS R4000 class
microprocessor design into its MobilePro handheld personal computer.
Other Embedded Applications. Significant design wins in more traditional
embedded market applications include networking communications equipment from
Cisco as well as laser printers from Hewlett-Packard Company, Electronics for
Imaging Inc. and Brother Industries, Ltd.
Products
The Company designs, develops and licenses intellectual property for
high-performance microprocessors. The Company's intellectual property is used in
the design of microprocessor cores, instruction set architectures ("ISAs") and
application specific extensions ("ASEs") that enable its semiconductor partners
to manufacture flexible, high-performance microprocessors for embedded systems
within demanding time-to-market requirements. Through licensing and
royalty-based arrangements with its semiconductor partners, the Company seeks to
strengthen the position of the MIPS architecture in the microprocessor industry
and proliferate its designs in embedded systems applications. The Company has
not historically and does not intend to manufacture microprocessors and related
devices.
Basic Cores. The Company currently provides flexible, modular
microprocessor cores covering a range of performance/price points to enable its
manufacturing partners to provide customized semiconductor products more quickly
to system OEMs.
R3000. The R3000 is a 32-bit microprocessor introduced in 1988 that
has served as the basis for many derivatives by the Company's semiconductor
partners and is available from the Company in core form. The
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small die size (less than two square millimeters in one implementation) and
performance characteristics of the R3000 make it well-suited for
applications such as video game consoles, including the Sony PlayStation,
and handheld personal computers, copiers, networking equipment and laser
printers.
R4000. The R4000 is a 64-bit microprocessor introduced in 1992 that
has served as the basis for a variety of derivatives, including the R4300i
which, together with Silicon Graphics' Reality Co-Processor (RCP), is used
in Nintendo 64 video game players. The R4000 was designed for applications
in which high performance is the principle objective, such as video games,
computer systems, network servers and interactive consumer applications
such as set-top boxes.
R5000. The R5000 is a 64-bit microprocessor developed by QED in
January 1996 that is presently licensed to the Company. The R5000, which
can be sublicensed by the Company to its other semiconductor partners, is a
dual instruction issue processor that has served as the microprocessor in
several of Silicon Graphics' workstations. Its performance characteristics
make it an attractive microprocessor for more powerful and sophisticated
embedded applications.
Instruction Set Architectures. Instruction set architectures are
combinations of binary instructions and the hardware to execute them which
together determine the native capability of a microprocessor. ISA standards are
important because, among other things, they become the common points around
which tools are built, software libraries and compilers are written and software
operating systems are developed. Elements of an ISA may be copyrighted or
patented thus preventing unrestricted use without a license. The Company
licenses its ISAs to promote the development and marketing of MIPS compatible
parts by its semiconductor manufacturing partners.
MIPS I/II. The MIPS I/II instruction set architecture is the basic
series of instructions for 32-bit operations. This instruction set, which
is presently used in a wide range of applications, allows the performance
of integer and floating point computation, logical operations, data
movement and a variety of other functions. The MIPS II ISA is implemented
in the R3000 series of products. Full MIPS I/II compatibility is protected
by patents, copyrights and trademarks owned by the Company.
MIPS III. In addition to providing full support for the MIPS II ISA,
the MIPS III instruction set architecture extends the MIPS II ISA to 64-bit
operations, increases the number of floating point registers and adds
certain other functions. The MIPS III ISA is implemented in the R4000
series of products. MIPS III is a patented instruction set that is
necessary to operate 64-bit MIPS microprocessors in 64-bit mode.
MIPS IV. MIPS IV enhances floating point operations and adds
additional instructions that improve performance in a number of engineering
and scientific applications. The MIPS IV ISA is implemented in the R5000
series of products.
MIPS V. MIPS V provides instructions that enhance performance in 3-D
graphics applications. The hardware for the MIPS V ISA has not been
implemented.
Application Specific Extensions. Application specific extensions are
intended to provide design flexibility for application-specific MIPS products
and are offered to the Company's semiconductor manufacturing partners as
optional, additional features to its microprocessor cores.
MIPS16. MIPS16 is an ASE to the Company's RISC architecture introduced
in October 1996 that permits substantially reduced systems costs by
reducing memory requirements through the use of 16-bit instruction
representation.
MIPS Digital Media Extensions (MDMX). MDMX is an ASE designed to
provide enhanced digital media processing including video compression and
decompression and audio and signal processing.
Research and Development
The Company believes that its future competitive position will depend in
large part on its ability to develop new and enhanced microprocessor cores and
related designs in a timely and cost-effective manner. The Company believes that
these capabilities are necessary to meet the evolving and rapidly changing needs
of semiconductor manufacturers and system OEMs in the digital consumer products
industry. To this end, the Company has assembled a team of highly skilled
engineers that possess significant experience in the design and development of
complex microprocessors. The Company intends to build on this base of experience
and the technologies that it has developed to enhance the MIPS RISC architecture
and develop a broader line of microprocessor cores that are optimized for
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applications in the digital consumer products industry. The Company's strategy
is to use a modular approach that emphasizes re-usable, licensable
microprocessors, cores and software technology. The Company believes that this
increased flexibility and modularity will allow its semiconductor partners to
provide high-performance, customized products more quickly to their customers.
In addition, the Company develops and licenses standardized ISAs and ASEs to
work within and around its RISC architecture to enhance and tailor the
capabilities of its microprocessor designs for specific applications.
Historically, the Company has collaborated with its semiconductor manufacturing
partners to develop these specific product applications and ASEs from its core
microprocessor designs.
The Company develops and licenses its microprocessor designs in two forms.
Initial or "process targeted designs" are designs intended to address the
specific silicon manufacturing process technology of the semiconductor
manufacturer to which it is licensed. For example, details such as transistor
and interconnect dimensions vary from manufacturer to manufacturer and affect
performance. The Company believes that its ability to adjust its microprocessor
designs to work at optimum performance levels for targeted silicon process
technologies is a significant competitive advantage. Because they are designed
with the manufacturing partner's specific silicon process technology in mind, it
is expected that these initial microprocessor cores will have superior
performance levels and high value for the target partner. The Company also
expects to generate both high-level description language representations of
these designs called "soft" cores and intermediate representations with some
process targeting called "firm" cores. Key internal circuits of "firm" cores can
be enhanced to maintain substantially the level of performance of the "process
targeted designs" on which they are based. "Soft" cores and "firm" cores are
flexible and can be licensed to multiple customers and used in multiple
applications.
In anticipation of the Separation and the more limited focus of its
research and development efforts, the Company has significantly reduced its
research and development staff, from 221 persons at December 31, 1997 to 40
persons at June 30, 1998. This decrease principally reflects the transfer to
Silicon Graphics of employees engaged in the development of next generation
microprocessors for Silicon Graphics' systems as well as other staff reductions
associated with the Company's shift in strategic direction. Because the Company
expects to use industry-standard third-party design tools, it will not be
required to develop and maintain the proprietary design tools that were
necessary in connection with the design of high-performance microprocessors for
Silicon Graphics. As a result, the Company expects that its staffing
requirements will be significantly lower than those required prior to the
Separation. For the fiscal years ended June 30, 1998, 1997 and 1996 the
Company's research and development costs were $43.4 million, $68.8 million and
$48.4 million, respectively.
Sales and Marketing
The Company's sales and marketing activities are focused principally on
establishing and maintaining licensing arrangements with semiconductor
manufacturers and participating in marketing, sales and technical efforts
directed to system OEMs. The Company licenses its RISC-based microprocessor and
related design technology on a non-exclusive and worldwide basis to
semiconductor manufacturers who, in turn, sell products incorporating these
technologies to system OEMs. The partnerships established by the Company form a
distribution channel and are an important element of its strategy to proliferate
the MIPS RISC architecture as the standard in the embedded microprocessor
industry. In establishing these partnerships, the Company seeks to license its
technology to those companies it believes can offer value-added design
capabilities in the Company's existing target markets as well as expand the
market for the Company's microprocessor and related designs. By licensing its
technology to multiple semiconductor manufacturers, the Company seeks to ensure
that system access to multiple sources of its RISC-based microprocessors and
related designs. The Company presently has two customers that individually
account for more than 10% of its total revenue: Nintendo and NEC. Substantially
all of the revenue derived from these two customers reflects contract revenue
and royalties related to development and sales of Nintendo 64 video game players
and related cartridges. Revenue related to sales of Nintendo 64 video game
cartridges is expected to continue to account for a significant portion of the
Company's total revenue for the next several years and, therefore, the Company
expects that a significant portion of its total revenue will continue to be
derived from Nintendo and, to a lesser extent, NEC. Because revenue related to
sales of Nintendo 64 video game cartridges is expected to represent a
substantial portion of the Company's total revenue, the Company expects to
experience seasonal fluctuations in its revenue and operating results. See
"Factors That May Affect Our Business--Seasonality" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Revenue." For
financial information regarding revenue derived from the Company's international
licensees, see Note 13 of Notes to Financial Statements.
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Although the precise terms of the Company's contracts vary from licensee to
licensee, they typically provide for technology license and engineering service
fees which may be payable up-front and/or upon the achievement of certain
milestones such as provision of deliverables by the Company or production of
semiconductor products by the licensee. The Company's contracts also provide for
the payment of royalties to the Company based on a percentage of the net revenue
earned by the licensee from the sale of products incorporating the Company's
technology and, in some cases, based on unit sales of such products. The
Company's contracts with its semiconductors partners are typically subject to
periodic renewal or extension. The Company also offers licensees the option to
license its technology on a single-use or unlimited-use basis, and may provide
licensees with various technical support, training and consulting services and
sales and marketing support.
Certain of the Company's marketing activities are also aimed at system
OEMs. Through targeted advertising and co-marketing programs with its partners,
the Company seeks to increase awareness of the MIPS RISC architecture in popular
digital consumer products.
Because the Company's past microprocessor design efforts have primarily
focused on serving the needs of Silicon Graphics, and although the Company has
always maintained a sales and marketing staff to support its strategic
relationships, its sales and marketing activities have not historically been
central to its operations. The Company's sales and marketing staff and related
expenses are expected to increase as the Company seeks to diversify its revenue
base. The Company's sales and marketing effort is a significant factor to the
Company's future operating success.
Intellectual Property
The Company regards its patents, copyrights, mask work rights, trademarks,
trade secrets and similar intellectual property as critical to its success, and
relies on a combination of patent, trademark, copyright, mask work and trade
secret laws to protect its proprietary rights. Any failure of the Company to
obtain or maintain adequate protection of its intellectual property rights for
any reason could have a material adverse effect on its business, results of
operations and financial condition. The Company owns approximately 51 U.S.
patents on various aspects of its technology, with expiration dates ranging from
2006 to 2015, approximately 24 pending U.S. patent applications, as well as all
foreign counterparts relating thereto. There can be no assurance that patents
will issue from any patent applications submitted by the Company, that any
patents held by the Company will not be challenged, invalidated or circumvented
or that any claims allowed from its patents will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage to the
Company. In addition, there can be no assurance that third parties will not
assert claims of infringement against the Company or against the Company's
semiconductor manufacturing partners in connection with their use of the
Company's technology. Such claims, even those without merit, could be time
consuming, result in costly litigation and/or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all.
Moreover, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as do the laws of the United States
and, because of the importance of the Company's intellectual property rights to
its business, this could have a material adverse effect on its business, results
of operations and financial condition.
The Company also uses licensing agreements and employee and third party
nondisclosure and assignment agreements to limit access to and distribution of
its proprietary information and to obtain ownership of technology prepared on a
work-for-hire basis. There can be no assurance that the steps taken by the
Company to protect its intellectual property rights will be adequate to deter
misappropriation of such rights or that the Company will be able to detect
unauthorized uses and take immediate or effective steps to enforce its rights.
There can also be no assurance that the steps taken by the Company to obtain
ownership of contributed intellectual property will be sufficient to assure its
ownership of all proprietary rights. The Company also relies on unpatented trade
secrets to protect its proprietary technology. No assurance can be given that
others will not independently develop or otherwise acquire the same or
substantially equivalent technologies or otherwise gain access to the Company's
proprietary technology or disclose such technology or that the Company can
ultimately protect its rights to such unpatented proprietary technology. In
addition, no assurance can be given that third parties will not obtain patent
rights to such unpatented trade secrets, which patent rights could be used to
assert infringement claims against the Company. From time to time the Company
has entered, and in the future may enter, into cross licensing arrangements with
others, pursuant to which the Company licenses certain of its patents in
exchange for patent licenses from such licensees. Although these types of cross
licensing arrangements are common in the semiconductor and microprocessor
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industries, and do not generally provide for transfers of know-how or other
proprietary information, such arrangements may facilitate the ability of such
licensees, either alone or in conjunction with others, to develop competitive
products and designs.
The Company and Silicon Graphics have entered into arrangements pursuant to
which certain intellectual property was assigned to the Company, subject to the
grant of a license to Silicon Graphics; certain intellectual property was
retained by Silicon Graphics, subject to the grant of a license to the Company;
and certain intellectual property was retained by Silicon Graphics without any
ongoing interest to the Company. The Company's inability to use Silicon
Graphics' intellectual property in the future could have a material adverse
affect on its business and results of operations. In the past, the MIPS Group
has benefited from its status as a division of Silicon Graphics in its access to
the intellectual property of third parties through licensing arrangements or
otherwise, and in the negotiation of the financial and other terms of any such
arrangements. As a result of the Separation, there can be no assurance that the
Company will be able to negotiate commercially attractive intellectual property
licensing arrangements with third parties in the future, particularly if the
Company ceases to be a majority-owned subsidiary of Silicon Graphics. In
addition, in connection with any future intellectual property infringement
claims, the Company will not have the benefit of asserting counterclaims based
on Silicon Graphics' intellectual property portfolio, nor will the Company be
able to provide licenses to Silicon Graphics' intellectual property in order to
resolve such claims.
Competition
The market for embedded microprocessors is highly competitive and
characterized by rapidly changing technological needs and capabilities. The
Company believes that the principal competitive factors in the embedded
microprocessor market are performance, functionality, price, customizability and
power consumption. The Company competes primarily against ARM Holdings plc and
Hitachi Semiconductor (America) Inc. The Company also competes against certain
semiconductor manufacturers whose product lines include microprocessors for
embedded and non-embedded applications, including Advanced Micro Devices, Inc.,
Intel Corporation, Motorola, Inc. and National Semiconductor Corporation. In
addition, the Company must continue to differentiate its microprocessor and
related designs from those available or under development by the internal design
groups of semiconductor manufacturers, including its current and prospective
manufacturing partners. Many of these internal design groups have substantial
programming and design resources and are part of larger organizations, which
have substantial financial and marketing resources. There can be no assurance
that internal design groups will not develop products that compete directly with
the Company's microprocessor and related designs or will not actively seek to
participate as merchant vendors in the intellectual property component market by
selling to third-party semiconductor manufacturers or, if they do, that the
Company will be able to compete with them successfully. To the extent that these
alternative technologies provide comparable performance at a lower or similar
cost than the Company's technology, semiconductor manufacturers may adopt and
promote these alternative technologies. Certain of the Company's competitors
have greater name recognition and customer bases as well as greater financial
and marketing resources than the Company, and such competition could adversely
affect the Company's business, results of operations and financial condition.
Employees
As of June 30, 1998, the Company had 63 full time employees. Of this total,
40 were in research and development, 16 were in sales and marketing and 7 were
in finance and administration. The Company's future success will depend in part
on its ability to attract, retain and motivate highly qualified technical and
management personnel who are in great demand in the semiconductor industry. The
Company's business plan requires that it identify and hire additional highly
skilled technical personnel during fiscal 1999 to staff its anticipated research
and development activities. None of the Company's employees is represented by a
labor union or subject to a collective bargaining agreement. The Company
believes that its relations with its employees are good.
Item 2. Properties
The Company's executive, administrative and technical offices currently
occupy approximately 27,500 square feet (with an option to increase to 55,000
square feet) in a building subleased from Silicon Graphics in Mountain View,
California. Payments by the Company to Silicon Graphics under this sublease are
equal to amounts payable by Silicon Graphics under its sublease for the property
with a third party. This sublease will expire on May 31, 2002, subject to
earlier termination in certain circumstances. The Company believes that these
facilities are adequate to meets its current needs but that it may need to seek
additional space in the future.
7
<PAGE>
Item 3. Legal Proceedings
On April 6, 1998, the Company and Silicon Graphics filed an action against
ArtX, Inc. and certain employees of ArtX, Inc. in the Superior Court of the
State of California alleging, among other things, misappropriation of trade
secrets and breach of contractual and fiduciary duties in connection with the
defendants' actions in developing graphics technology for Nintendo's next
generation video game system. On April 23, 1998, Nintendo notified Silicon
Graphics and the Company of its belief that the disclosure in the Company's
registration statement filed with the Securities and Exchange Commission on
April 21, 1998 of certain information regarding the contract for the development
of the Nintendo 64 video game system constituted a breach of that contract.
Silicon Graphics and the Company strongly disagree that any such breach has
occurred. On May 27, 1998, Silicon Graphics, the Company, Nintendo and ArtX,
Inc. entered into a memorandum of understanding pursuant to which the companies
are engaged in further discussions relating to a possible mutually beneficial
business relationship, including the possible selection of a MIPS-based
microprocessor for the next generation Nintendo video game system. On the basis
of this understanding, Silicon Graphics and the Company have dismissed without
prejudice the pending lawsuit against ArtX, Inc., and Nintendo has agreed that,
in the absence of a lawsuit against Nintendo or ArtX, Inc., it will not assert
any claim that the Nintendo 64 contract has been breached in connection with the
filing of the Company's registration statement.
On April 10, 1998, the Company filed an action against Lexra, Inc., a
Massachusetts company ("Lexra"), in the United States District Court for the
Northern District of California, asserting claims for false advertisement,
trademark infringement, trademark dilution and unfair competition. This lawsuit
arose out of Lexra's claim that its newly introduced product offering is "MIPS
compatible." Lexra does not have a license from the Company to use its
intellectual property in connection with any Lexra products. In the suit, the
Company sought injunctive relief as well as monetary damages. In May 1998, Lexra
filed an answer and counterclaim seeking to cancel certain of the Company's
trademarks. The parties recently reached an agreement in principle to settle
this matter. Among other things, Lexra will no longer state that its products
are "MIPS compatible". Lexra's counterclaims will also be dismissed. The Company
is continuing to evaluate possible patent infringement claims against Lexra and
will assert such claims if appropriate.
In February 1998, the Company received a notice asserting that the R10000
and potentially other microprocessors designed by the Company allegedly infringe
a patent originally assigned to Control Data Corporation. The Company is
evaluating these claims.
The Company believes that the foregoing proceedings are not likely to have
a material adverse effect on its business, results of operations or financial
condition.
From time to time, the Company receives communications from third parties
asserting patent or other rights covering the Company's products and
technologies. Based upon the Company's evaluation, it may take no action or it
may seek to obtain a license. There can be no assurance in any given case that a
license will be available on terms the Company considers reasonable, or that
litigation will not ensue.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) During the fourth quarter of fiscal 1998, Silicon Graphics, Inc., the
Company's sole stockholder, took action by written consent on, May 22, 1998,
June 2, 1998 and June 26, 1998.
(b) On June 26, 1998, the sole stockholder consented to the election of
Anthony B. Holbrook and Fred M. Gibbons as directors of the Company, to be
effective on July 6, 1998, the closing of the Company's initial public offering.
The Directors whose terms of office continued after the stockholder action are
Forest Baskett, John E. Bourgoin, Kenneth L. Coleman, William M. Kelly and
Teruyasu Sekimoto.
(c) Other matters approved by the sole stockholder were the 1998 Long Term
Incentive Plan and the Employee Stock Purchase Plan on May 22, 1998, an increase
in the authorized capital stock of the Company on June 2, 1998 and the
restatement of the Company's Certificate of Incorporation in connection with the
Company's initial public offering on June 26, 1998.
8
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) The Company's initial public offering of its Common Stock was declared
effective on June 29, 1998 at a price of $14.00 per share. The Company's Common
Stock is listed on the Nasdaq National Market under the symbol "MIPS." The
ending stock price for the period ended June 30, 1998 as reported by Nasdaq was
$13.437.
On July 6, 1998 the Company completed its initial public offering of
5,500,000 shares of its Common Stock pursuant to a Registration Statement on
Form S-1 (File No. 333-50643) declared effective by the Securities and Exchange
Commission on June 29, 1998. The offering was underwritten by Deutsche Bank
Securities, BancAmerica Robertson Stephens and Hambrecht & Quist. Of the
5,500,000 Common Shares offered, 1,250,000 were offered by the Company and
4,250,000 were offered by Silicon Graphics, Inc. The Company received
approximately $16,035,000 from the initial public offering, net of underwriting
discounts, commissions and other offering costs and expenses.
(b) Prior to June 30, 1998, Silicon Graphics was the only holder of record
of the Company's Common Stock. Subsequent to the closing of the Offering,
Silicon Graphics owns approximately 85.2% of the outstanding common stock of the
Company. As of September 10, 1998, there were 20 holders of record of the
Company's Common Stock.
(c) The Company has never paid or declared any cash dividends on its Common
Stock or other securities and does not anticipate paying cash dividends in the
foreseeable future.
(d) There were no sales by the Company of its equity securities during the
quarter ended June 30, 1998, which were not registered under the Securities Act
of 1933.
No payments constituted direct or indirect payments to directors, officers,
general partners of the issuer or their associates, or to persons owning ten
percent or more of any class of equity securities of the issuer or to affiliates
of the issuer.
The Company has used the net proceeds from the Offering to fund working
capital and general corporate purposes. The funds that are not being used to
fund short-term needs have been placed in temporary investments pending future
use.
9
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Item 6. Selected Financial Data.
The following table presents selected financial data of the Company. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations". The historical
financial information, particularly for periods prior to March 31, 1998 may not
be indicative of the Company's future performance and does not necessarily
reflect what the financial position and results of operations of the Company
would have been had the Company operated as a separate, stand-alone entity
during the periods covered. The historical financial information does not
reflect many significant changes that have occurred in the funding and
operations of the Company and the sources and costs of the Company's revenue as
a result of both the Separation and the Company's recent shift in strategic
direction.
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue:
Royalties .................... $ 55,980 $ 37,192 $ 19,716 $ 13,576 $ 8,402
Contract revenue ............. 830 3,115 17,327 13,903 8,962
-------- -------- -------- -------- --------
Total revenue .......... 56,810 40,307 37,043 27,479 17,364
Costs and expenses:
Cost of contract revenue ..... 375 1,345 5,580 7,364 2,768
Research and development ..... 43,446 68,827 48,402 39,033 24,396
Sales and marketing .......... 5,307 6,170 6,026 6,761 5,668
General and administrative ... 4,685 4,750 4,601 4,272 3,692
Restructuring charge ......... 2,614 -- -- -- --
-------- -------- -------- -------- --------
Total costs and expenses 56,427 81,092 64,609 57,430 36,524
-------- -------- -------- -------- --------
Operating income (loss) ........ 383 (40,785) (27,566) (29,951) (19,160)
Interest expense ............... (7) (50) (99) (69) (70)
-------- -------- -------- -------- --------
Net income (loss) .............. $ 376 $(40,835) $(27,665) $(30,020) $(19,230)
======== ======== ======== ======== ========
Net income (loss) per basic and
diluted share ................ $ 0.01 $ (1.13) $ (0.77) $ (0.83) $ (0.53)
======== ======== ======== ======== ========
<CAPTION>
June 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital deficiency ..... $ (4,530) $ (8,446) $ (8,531) $(16,683) $(11,230)
Total assets ................... 4,696 19,674 15,289 15,744 12,338
Long-term obligations, net of
current maturities ........... -- -- 331 739 457
Total stockholders' equity (deficit) (747) 8,072 3,853 (3,736) (755)
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this report. Except for the
historical information contained in this Annual Report on Form 10-K, the matters
discussed herein may contain forward-looking statements that are subject to
certain risks and uncertainties that could cause the Company's actual results to
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause such differences include, but are not
limited to, those identified herein under "Factors That May Affect Our
Business," and other risks detailed below and included from time to time in the
Company's other Securities and Exchange Commission ("SEC") reports and press
releases, copies of which are available from the Company upon request. The
forward-looking statements within this Annual Report on Form 10-K are identified
by words such as "believes," "anticipates," "expects," "intends," "may" and
other similar expressions. However, these words are not the exclusive means of
identifying such statements. The Company assumes no obligation to update any
forward-looking statements contained herein.
Overview
The Company's predecessor, MIPS Computer Systems, Inc., was founded in 1984
and was engaged in the design and development of RISC microprocessors for the
computer systems and embedded markets. Silicon Graphics adopted the MIPS
architecture for its computer systems in 1988 and acquired MIPS Computer
Systems, Inc. in 1992. Following the acquisition, Silicon Graphics continued the
MIPS microprocessor business through its MIPS Group (a division of Silicon
Graphics), which focused primarily on the development of high-performance
microprocessors for Silicon Graphics' workstations and servers. Until the last
few years, cost considerations limited the broader use of these microprocessors.
However, as the cost to design and manufacture microprocessors based on the MIPS
technology decreased, the MIPS Group sought to penetrate the consumer market,
both through supporting and coordinating the efforts of the MIPS semiconductor
partners and, most notably, by partnering with Nintendo in its design of the
Nintendo 64 video game player and related cartridges. Revenue related to sales
of Nintendo 64 video game players and related cartridges currently accounts for
the substantial majority of the Company's revenue. Based on reports provided by
the Company's semiconductor partners, sales of MIPS-based devices have grown
from 320,000 units in calendar year 1992 to over 48 million units in calendar
year 1997.
The financial statements discussed below reflect the historical results of
operations, financial position and cash flows of the MIPS Group, certain
portions of which were transferred to the Company by Silicon Graphics in the
Separation. The financial statements contained herein and discussed below have
been carved out from the financial statements of Silicon Graphics using the
historical results of operations and historical basis of the assets and
liabilities of such business, as adjusted to reflect allocations of certain
corporate charges that management believes are reasonable. However, the
financial information included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Company in the future or
what the results of operations, financial position and cash flows would have
been had the MIPS Group been a separate, stand-alone entity during the periods
presented. This is due to the historical operation of the MIPS Group as a part
of the larger Silicon Graphics enterprise. The financial information included
herein, does not reflect the many significant changes that have ocurred in the
funding and operations of the Company and the sources and costs of the Company's
revenue as a result of both the Separation and the Company's recent shift in
strategic direction.
The Company's revenue consists of royalties and contract revenue earned
under contracts with its semiconductor partners and under its agreement with
Nintendo. The Company's contracts with its semiconductor partners are typically
subject to periodic renewal or extension and expire at various dates from
January 1999 through December 2007. The Company generates royalties from the
sale by semiconductor manufacturers of products incorporating the Company's
technology. The Company also receives royalties from Nintendo relating to sales
of Nintendo 64 video game players and related cartridges. Royalties may be
calculated as a percentage of the revenue received by the seller on sales of
such products or on a per unit basis. Contract revenue includes technology
license fees and engineering service fees earned primarily under contracts with
Nintendo and the Company's semiconductor manufacturing partners. Technology
license fees range from several hundred thousand dollars for a single-use
license to millions of dollars for an unlimited license to use the Company's
technology. Part of these fees may be payable up-front and part may be due upon
the achievement of certain milestones such as provision of deliverables by the
Company or production of semiconductor chips by the licensee. In fiscal 1996 the
Company's total revenue was split relatively equally between royalties and
contract revenue. Royalties in fiscal 1996 were earned primarily from NEC, while
contract revenue for those periods primarily reflected engineering service fees
from Nintendo
11
<PAGE>
related to the Nintendo 64 video game system prior to its commercial
introduction. In fiscal 1997 and fiscal 1998, the Company's revenue mix changed
significantly, with royalties representing over 90% of the Company's total
revenue during those periods, due primarily to royalties earned from Nintendo,
and to a lesser extent NEC, on sales of Nintendo 64 video game players and
related cartridges.
In the near term, the Company's revenue will consist primarily of royalties
received from Nintendo and NEC on sales of Nintendo 64 video game players and
related cartridges. For the fiscal year ended June 30, 1998, such royalties
accounted for approximately 79% of the Company's total revenue. The Company
receives royalties from NEC based on a percentage of the revenue derived by NEC
from sales of the microprocessor included in the Nintendo 64 video game player.
The Company's agreement with Nintendo provides for the payment of royalties
based on unit sales of Nintendo 64 video game players and unit sales of related
video game cartridges. Total royalties from Nintendo with respect to sales of
Nintendo 64 video game players had a cap based on unit sales that was reached in
the second quarter of fiscal 1998. There is no cap on royalties from NEC with
respect to its sale of microprocessors to Nintendo for Nintendo 64 video game
players or on royalties from Nintendo with respect to sales of Nintendo 64 video
game cartridges. The Company anticipates that revenue related to sales of
Nintendo 64 video game cartridges will represent a substantial portion of its
total revenue for the next several years. However, competition in the market for
home entertainment products is intense and the introduction of new products or
technologies as well as shifting consumer preferences could negatively impact
video game cartridge sales. There can be no assurance as to the amount and
timing of sales of Nintendo 64 video game players and related cartridges and,
consequently, there can be no assurance as to the royalty stream to the Company
from such sales. In particular, the eventual introduction of the next generation
Nintendo video game system is expected to result in declining sales of Nintendo
64 video game players and related cartridges, although sales of video game
cartridges would be likely to continue for some time. In the near term, factors
negatively affecting sales of Nintendo 64 video game cartridges could have a
material adverse effect on the Company's results of operations and financial
condition.
The Company expects that royalties will continue to represent a significant
percentage of its total revenue over the next several years due to its
relationship with Nintendo. The amount, timing and relative mix of royalties and
contract revenue is difficult for the Company to predict. The amount and timing
of future royalties will depend on the adoption of the Company's technology by
digital consumer product manufacturers, consumer acceptance of products
incorporating the Company's technology, changes in the average selling prices of
semiconductor and digital consumer products and fluctuations in currency
exchange rates. Moreover, the Company's royalty arrangements will vary from
licensee to licensee depending on a number of factors, including the amount of
any license fee paid and the marketing and engineering support required by the
licensee. The amount and timing of future contract revenue will depend upon the
financial terms of the Company's contractual arrangements with its semiconductor
partners (which may require significant up-front payments or payments based on
the achievement of certain milestones) and the adoption of the Company's
technology by semiconductor manufacturers, which is influenced by a number of
factors including competitive conditions in the market for microprocessor
intellectual property. In addition, contract revenue may fluctuate significantly
from period to period and any increase or decrease in such revenue will not be
indicative of future period-to-period increases or decreases.
The Company's primary costs and expenses are research and development and
sales and marketing. The Separation has had a significant impact on the
Company's research and development cost structure. Silicon Graphics' design
efforts have required a significant staffing level because its complex
microprocessor requirements and the development and maintenance of proprietary
design tools have demanded large design teams. By contrast, the Company uses
smaller design teams and relies largely on industry standard third-party design
tools, which has reduced staffing requirements and costs. The Company reduced
its research and development staff from 221 persons at December 31, 1997 to 40
persons at June 30, 1998, principally due to the transfer to Silicon Graphics of
employees engaged in the development of next generation microprocessors for
Silicon Graphics' systems as well as other staff reductions associated with the
Company's change in strategic direction.
Sales and marketing expenses include salaries, travel expenses and costs
associated with trade shows, advertising and other marketing efforts. Costs of
technical support are also included in sales and marketing expenses. The
Company's sales and marketing efforts are principally directed at establishing
and supporting strategic relationships with semiconductor manufacturers. At June
30, 1998, the Company's sales and marketing staff totaled 16 persons.
12
<PAGE>
Results of Operations -- Years Ended June 30, 1998, 1997 and 1996
Total revenue was $56.8 million, $40.3 million and $37.0 million in fiscal
1998, 1997 and 1996, respectively. Royalties for fiscal 1998 and 1997 consisted
of royalties from sale by semiconductor manufacturers of products incorporating
the Company's technology and from sales of Nintendo 64 video game players and
related cartridges. Revenue for fiscal 1996 consisted of royalties from the sale
by semiconductor manufacturers of products incorporating the Company's
technology. The significant increase in royalties in fiscal 1998 from fiscal
1997 and in fiscal 1997 from fiscal 1996 reflects royalties received from
Nintendo and NEC related to sales of Nintendo 64 video game players and related
cartridges. The Company earned its first significant royalties from Nintendo 64
video game system sales in the third quarter of fiscal 1997, following the
commercial introduction of that system. In the second quarter of fiscal 1998,
royalties from the graphics chip included in the Nintendo game player reached
its cap. Contract revenue for fiscal 1998 consisted principally of license fees
related to code compression technology, and for fiscal 1997 consisted
principally of engineering service fees from Nintendo related to development
efforts for Nintendo 64 video game products. Fiscal 1996 contract revenue
included engineering service fees related to development efforts for the
Nintendo 64 video game system as well as approximately $10.0 million in license
fees from three licensees. The decrease in contract revenue in fiscal 1997
reflected substantial completion in fiscal 1996 of the Nintendo 64 video game
system development prior to its commercial introduction by Nintendo. Under the
terms of the Company's contracts with three of its semiconductor partners, such
partners pay royalties to the Company on sales to Silicon Graphics of certain
products incorporating the Company's technology. For fiscal 1998 the Company
estimates that less than 5% of its total revenue was related to such sales. The
Company expects that revenue related to such sales will decrease in the future.
Cost of contract revenue was $375,000, $1.3 million and $5.6 million in
fiscal 1998, 1997 and 1996, respectively. Cost of contract revenue in fiscal
1998 was principally attributable to sublicense fees and in fiscal 1997 and 1996
was principally attributable to non-recurring engineering fees related to
Nintendo 64 video game system development. The decrease in fiscal 1997 from 1996
was principally attributable to the completion in fiscal 1996 of the Nintendo 64
video game system development. The Company believes that future cost of contract
revenue will be minimal.
Research and development expenses were $43.4 million, $68.8 million and
$48.4 million in fiscal 1998, 1997 and 1996, respectively. The decrease in
research and development expenses in fiscal 1998 was primarily due to the
reduction in the Company's research and development staff from 221 persons at
December 31, 1997 to 40 persons at June 30, 1998. This reduction reflects the
transfer to Silicon Graphics of employees engaged in the development of next
generation microprocessors for Silicon Graphics' systems as well as other staff
reductions associated with the Company's change in strategic direction. The
increase in research and development expenses in fiscal 1997 was attributable to
additional personnel, including consultants, working on next generation
microprocessor development projects.
Sales and marketing expenses were $5.3 million, $6.2 million and $6.0
million in fiscal 1998, 1997 and 1996, respectively. The decrease in fiscal 1998
was primarily due to a decrease in advertising and promotional spending. General
and administrative expenses remained relatively unchanged as such costs were
$4.7 million, $4.8 million and $4.6 million in fiscal 1998, 1997 and 1996,
respectively.
The restructuring charge taken in the second quarter of fiscal 1998
included $500,000 in severance related costs and $2.1 million in asset
write-downs related to the Company's shift in strategic direction.
Prior to the Separation, the Company did not have a tax sharing agreement
in place but, rather, was included in the income tax returns filed by Silicon
Graphics and its subsidiaries in various domestic and foreign jurisdictions.
Pursuant to the tax sharing agreement, the Company will realize no income tax
benefit, nor bear any income tax liability, related to its operations prior to
the completion of its initial public offering. Moreover, in light of historical
losses, on a stand-alone basis, the Company's tax provision for fiscal 1998
would have been immaterial. Therefore, no provision or benefit for income taxes
has been recorded for the periods presented in the accompanying financial
statements.
Impact of Currency
Certain of the Company's international licensees pay royalties based on
revenues that are reported in a local currency (currently yen) and translated
into U.S. dollars at the exchange rate in effect when such revenues are reported
by the licensee. To date, substantially all of the Company's revenue from
international customers has been denominated in U.S. dollars. However, to the
extent that sales to digital consumer product manufacturers by the
13
<PAGE>
Company's manufacturing partners are denominated in foreign currencies,
royalties received by the Company on such sales could be subject to fluctuations
in currency exchange rates. In addition, if the effective price of the
technology sold by the Company to its partners were to increase as a result of
fluctuations in foreign currency exchange rates, demand for the Company's
technology could fall which would, in turn, reduce the Company's royalties. The
Company is unable to predict the amount of non-U.S. dollar denominated revenue
earned by its licensees and, therefore, has not attempted to mitigate the effect
that currency fluctuations may have on its royalty revenue.
Liquidity and Capital Resources
On July 6, 1998 the Company completed its initial public offering of
5,500,000 shares ot its common stock. Of the 5,500,000 shares offered, 1,250,000
shares were offered by the Company and 4,250,000 shares were offered by Silicon
Graphics. The Company raised approximately $16M from the initial public
offering. The Company's principal capital requirements are to fund working
capital needs and capital expenditures in order to support the Company's revenue
growth. Prior to its initial public offering and during the periods presented,
these capital requirements have been satisfied by funds provided by Silicon
Graphics. Silicon Graphics historically has performed cash management services
for the Company, whereby the Company's cash flow was directed to Silicon
Graphics and Silicon Graphics provided cash to the Company to fund its operating
expenses and capital expenditures. Subsequent to the Separation, the Company has
not participated in Silicon Graphics' cash management system and Silicon
Graphics has not provided additional funds to the Company to finance its
operations.
The Company's future liquidity and capital requirements are expected to
vary greatly from quarter to quarter, depending on numerous factors, including,
among others, the cost, timing and success of product development efforts, the
cost and timing of sales and marketing activities, the extent to which the
Company's existing and new technologies gain market acceptance, the level and
timing of contract revenues and royalties, competing technological and market
developments and the costs of maintaining and enforcing patent claims and other
intellectual property rights. The Company believes that cash generated by its
operations, together with the net proceeds to the Company from its initial
public offering, will be sufficient to meet its projected operating and capital
requirements. The Company may elect to raise additional funds through public or
private financing, strategic relationships or other arrangements. Additional
equity financing may be dilutive to holders of the Common Stock, and debt
financing, if available, may involve restrictive covenants. Moreover, strategic
relationships, if necessary to raise additional funds, may require that the
Company relinquish its rights to certain of its technologies. As long as Silicon
Graphics desires to maintain its percentage ownership interest in the Company,
the Company may be constrained in its ability to issue Common Stock in
connection with acquisitions or to raise equity capital. Any failure of the
Company to raise capital when needed could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company has had no direct third-party indebtedness. The Company intends
to enter into a revolving credit facility with a bank or other financial
institution to provide for certain of its working capital needs.
Year 2000 Compliance
The Company is currently examining the Year 2000 issue. The Company
believes its products are Year 2000 compliant; however, the Company is
initiating a program to prepare its information technology ("IT") and related
non-IT and processes for the Year 2000 and plans to have changes to critical
systems completed by the third quarter of calendar year 1999 to allow time for
testing.
Management is assessing the Year 2000 project costs and expects the
assessment to be complete by the end of the second quarter of fiscal 1999, but
based on preliminary estimates, the costs of any necessary actions are not
expected to be material to the Company's results of operations or financial
condition.
The Company intends to cooperate with its manufacturing partners and others
with which it does business to coordinate Year 2000 compliance with operational
processes and marketed products, although the Company is unable to evaluate the
Year 2000 compliance of products and technology developed by third parties that
incorporates the Company's technology. To the extent that any such third-party
product or technology fails to be Year 2000 compliant, the Company may be
adversely affected due to its association with such product or technology. The
Company will also be contacting critical suppliers of products and services to
determine that the suppliers' operations and the products and services they
provide are Year 2000 capable or to monitor their progress toward Year 2000
capability. There can be no assurance that another company's failure to ensure
Year 2000 capability would not have an adverse effect on the Company.
14
<PAGE>
Factors That May Affect Our Business
Risks Associated with Recent Shift in Strategic Direction. The Company's
research and development efforts historically focused primarily on the
development of high-performance microprocessor and related designs for Silicon
Graphics' workstations and servers. However, as the cost to design and
manufacture microprocessors based on the Company's technology decreased, the
Company has sought to penetrate the market for high-volume, high-performance
embedded applications by supporting and coordinating the efforts of its
semiconductor partners in that area. In connection with the Separation and the
Offering, the Company has formulated a new strategic direction in which its
primary focus is the development of microprocessors and related designs for
applications in the embedded market, including digital consumer products such as
video game products, handheld personal computers and digital set-top boxes. The
design and development of high-performance microprocessors for the next
generation Silicon Graphics' product line is carried out by persons who have
been transferred to Silicon Graphics in connection with the Separation. The
Company's shift in strategic direction involves several risks, including (i)
increased reliance on the evolving and highly competitive digital consumer
products industry; (ii) the need for the Company to refocus its research and
development efforts from microprocessors primarily for high-performance computer
systems to microprocessors and related designs for use in a wide range of
digital consumer products; and (iii) increased importance of the Company's sales
and marketing activities and its limited experience in this area. Any failure by
the Company to adequately address any of these risks could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Limited Relevance of Historical Financial Information. The historical
financial information included herein, particularly for periods prior to the
third quarter of fiscal 1998, does not reflect the many significant changes in
the Company's cost structure that occurred as a result of the Separation and the
Company's recent shift in strategic direction nor the changes that occurred in
the funding and operations of the Company due to its status as a separate,
stand-alone entity. The Company has reduced its research and development staff
from 221 persons at December 31, 1997 to 40 persons at June 30, 1998. This
reduction primarily reflects the transfer to Silicon Graphics of employees
engaged in the development of next generation microprocessors for Silicon
Graphics' systems. Because the employees transferred to Silicon Graphics were
primarily engaged in research and development activities that did not generate
any material revenue for the Company, however, the reduction in the Company's
research and development staff resulting from the Separation and the shift in
strategic direction is not expected to have a material effect on the Company's
revenue in future periods. In addition, sales and marketing activities are
expected to increase as the Company shifts its focus from the design of
microprocessors addressing the needs of Silicon Graphics to the development,
marketing and licensing of microprocessor and related designs for a wide variety
of applications in the digital consumer products industry.
Unpredictable and Fluctuating Operating Results. The Company experiences
significant fluctuations in its quarterly operating results due to a variety of
factors, many of which are outside of its control. Moreover, because many of the
Company's revenue components fluctuate and are difficult to predict and the
Company's expenses are largely independent of its revenue in any particular
period, it is difficult for the Company to accurately forecast operating
results. The Company's revenue in any particular quarter is dependent on a
number of factors, including the demand for and average selling prices of
semiconductor products that incorporate the Company's technology, the financial
terms of the Company's contractual arrangements with its semiconductor partners
(which may require significant up-front payments or payments based on the
achievement of certain milestones), the relative mix of contract revenue and
royalties, and competitive pressures resulting in lower contract revenue or
royalty rates. In addition, contract revenue may fluctuate significantly from
period to period and any increase or decrease in such revenue will not be
indicative of future period-to-period increases or decreases. Because the
Company's expense levels are based, in part, on management's expectations
regarding future revenue, if revenue is below expectations in any quarter, the
adverse effect may be magnified by the Company's inability to adjust spending in
a timely manner to compensate for any such revenue shortfall.
Factors that may adversely affect the Company's quarterly operating results
include the Company's ability to develop, introduce and market new
microprocessor intellectual property, the demand for and average selling prices
of semiconductor products that incorporate the Company's technology, the
establishment or loss of strategic relationships with semiconductor
manufacturing partners or manufacturers of digital consumer products, the timing
of new products and product enhancements by the Company and its competitors,
changes in the Company's and digital consumer product manufacturers' development
schedules and levels of expenditures on research and development and product
support and general economic conditions. As a result, the Company's total
revenue and
15
<PAGE>
operating results in any future period cannot be predicted with certainty, and
its operating results in any quarter may not be indicative of its future
performance. Moreover, the Company expects to experience seasonal fluctuations
in its revenue and operating results.
Revenue Concentration. The Company is subject to revenue concentration
risks at both the product and semiconductor manufacturing partner levels. To
date, a substantial portion of the Company's total revenue has been derived from
contract revenue and royalties earned on sales of video game products that use
the Company's RISC-based microprocessor technology. In particular, royalties and
contract revenue from Nintendo and NEC relating to sales of Nintendo 64 video
game players and related cartridges accounted for 79%, 69% and 23% of the
Company's total revenue for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
The Company anticipates that royalties related to sales of Nintendo 64
video game cartridges will represent a substantial portion of its total revenue
for the next several years. However, competition in the market for home
entertainment products is intense and the introduction of new products or
technologies, as well as shifting consumer preferences, could negatively impact
Nintendo 64 video game cartridge sales. There can be no assurance as to the
amount and timing of sales of Nintendo 64 video game players and related
cartridges and, consequently, there can be no assurance as to the royalty stream
to the Company from such sales. In particular, the eventual introduction of the
next generation Nintendo video game system is expected to result in declining
sales of Nintendo 64 video game players and related cartridges, although sales
of video game cartridges would be likely to continue for some time. In the near
term, factors negatively affecting sales of Nintendo 64 video game cartridges
could have a material adverse effect on the Company's results of operations and
financial condition.
Although the Company expects that an increasingly significant portion of
its future revenue will be related to sales of digital consumer products such as
handheld personal computers and set-top boxes as well as other video game
products, there can be no assurance that the Company's technology will be
selected for design into any such products. Accordingly, the Company may remain
significantly dependent on revenue related to sales of video game products. The
identity of significant products may vary from period to period depending on the
addition of new contracts and the number of designs using the Company's
technology.
A significant portion of the Company's total revenue has been and is
expected to continue to be derived from a limited number of semiconductor
manufacturers. For the fiscal years ended June 30, 1998, 1997 and 1996, NEC
accounted for approximately 13%, 23% and 31%, respectively, of the Company's
total revenue. The Company believes that NEC will continue to represent in
excess of 10% of its total revenue for at least the next several years, although
NEC is not obligated to continue using the Company's technology in its current
or future products. Because there is a relatively limited number of
semiconductor manufacturers to which the Company could license its technology on
a basis consistent with its business model, it is likely that the Company's
revenue will continue to be concentrated at the semiconductor manufacturing
partner level. This revenue concentration for any given period will vary
depending on the addition or expiration of contracts, the nature and timing of
payments due under such contracts and the volumes and prices at which the
Company's partners sell products incorporating its technology. Accordingly, the
identity of particular manufacturing partners that will account for any such
revenue concentration will vary from period to period and may be difficult to
predict.
Seasonality. Because revenue related to sales of Nintendo 64 video game
cartridges is expected to represent a substantial portion of the Company's total
revenue over the next several years, the Company expects to experience seasonal
fluctuations in its revenue and operating results. The Company records royalty
revenue from Nintendo in the quarter following the sale of the related Nintendo
64 video game cartridge. Because a disproportionate amount of Nintendo 64 video
game cartridges are typically sold in the Company's second fiscal quarter (which
includes the holiday selling season), a disproportionate amount of the Company's
revenue and operating income is expected to be realized in its third fiscal
quarter. In addition, as the Company increases its focus on microprocessor
intellectual property for high-volume digital consumer products, the Company can
be expected to continue to experience similar seasonal fluctuations in its
revenue and operating results.
Intellectual Property Matters. The Company regards its patents, copyrights,
mask work rights, trademarks, trade secrets and similar intellectual property as
critical to its success, and relies on a combination of patent, trademark,
copyright, mask work and trade secret laws to protect its proprietary rights.
Any failure of the Company to obtain or maintain adequate protection of its
intellectual property rights for any reason could have a material adverse effect
on its business, results of operations and financial condition. Subject to the
grant of a license to Silicon Graphics, the Company owns approximately 51 U.S.
patents on various aspects of its technology, with expiration dates ranging
16
<PAGE>
from 2006 to 2015, approximately 24 pending U.S. patent applications as well as
all foreign counterparts relating thereto. There can be no assurance that
patents will issue from any patent applications submitted by the Company, that
any patents held by the Company will not be challenged, invalidated or
circumvented or that any claims allowed from its patents will be of sufficient
scope or strength to provide meaningful protection or any commercial advantage
to the Company. In addition, there can be no assurance that third parties will
not assert claims of infringement against the Company or against the Company's
semiconductor manufacturing partners in connection with their use of the
Company's technology. Such claims, even those without merit, could be time
consuming, result in costly litigation and/or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all.
Moreover, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as do the laws of the United States
and, because of the importance of the Company's intellectual property rights to
its business, this could have a material adverse effect on its business, results
of operations and financial condition.
The Company also uses licensing agreements and employee and third party
nondisclosure and assignment agreements to limit access to and distribution of
its proprietary information and to obtain ownership of technology prepared on a
work-for-hire basis. There can be no assurance that the steps taken by the
Company to protect its intellectual property rights will be adequate to deter
misappropriation of such rights or that the Company will be able to detect
unauthorized uses and take immediate or effective steps to enforce its rights.
There can also be no assurance that the steps taken by the Company to obtain
ownership of contributed intellectual property will be sufficient to assure its
ownership of all proprietary rights. The Company also relies on unpatented trade
secrets to protect its proprietary technology. No assurance can be given that
others will not independently develop or otherwise acquire the same or
substantially equivalent technologies or otherwise gain access to the Company's
proprietary technology or disclose such technology or that the Company can
ultimately protect its rights to such unpatented proprietary technology. In
addition, no assurance can be given that third parties will not obtain patent
rights to such unpatented trade secrets, which patent rights could be used to
assert infringement claims against the Company. From time to time the Company
has entered, and in the future may enter, into cross licensing arrangements with
others, pursuant to which the Company licenses certain of its patents in
exchange for patent licenses from such licensees. Although these types of cross
licensing arrangements are common in the semiconductor and microprocessor
industries, and do not generally provide for transfers of know-how or other
proprietary information, such arrangements may facilitate the ability of such
licensees, either alone or in conjunction with others, to develop competitive
products and designs.
The Company and Silicon Graphics have entered into arrangements pursuant to
which certain intellectual property was assigned to the Company, subject to the
grant of a license to Silicon Graphics; certain intellectual property was
retained by Silicon Graphics, subject to the grant of a license to the Company;
and certain intellectual property was retained by Silicon Graphics without any
ongoing interest to the Company. The Company's inability to use Silicon
Graphics' intellectual property in the future could have a material adverse
affect on its business and results of operations. In the past, the MIPS Group
has benefited from its status as a division of Silicon Graphics in its access to
the intellectual property of third parties through licensing arrangements or
otherwise, and in the negotiation of the financial and other terms of any such
arrangements. As a result of the Separation, there can be no assurance that the
Company will be able to negotiate commercially attractive intellectual property
licensing arrangements with third parties in the future, particularly if the
Company ceases to be a majority-owned subsidiary of Silicon Graphics. In
addition, in connection with any future intellectual property infringement
claims, the Company will not have the benefit of asserting counterclaims based
on Silicon Graphics' intellectual property portfolio, nor will the Company be
able to provide licenses to Silicon Graphics' intellectual property in order to
resolve such claims.
Lack of Independent Operating History. The Company has never operated as a
stand-alone company. The Company continues to be a majority owned subsidiary of
Silicon Graphics, however, Silicon Graphics will have no obligation to provide
assistance to the Company. The Company will be required to develop and implement
the operational, administrative and other systems and infrastructure necessary
to support its current and future business. There can be no assurance that the
Company will be able to develop the necessary systems and infrastructure and any
failure to do so could have an adverse effect on the Company's business, results
of operations and financial condition.
17
<PAGE>
New Product Development and Technological Change. The Company's success is
highly dependent on its ability to develop enhancements and new generations of
its microprocessor intellectual property, introduce them to the marketplace in a
timely manner, and have them incorporated into semiconductor products that are
ultimately selected for design into the products of leading digital consumer
product manufacturers. There can be no assurance that the Company's development
efforts will be successful or that the characteristics of its microprocessor
intellectual property will satisfy those that may be critical to specific
applications in the embedded market. To the extent that the Company's
development efforts are unsuccessful or the characteristics of its
microprocessor intellectual property are not compatible with the requirements of
specific digital consumer product applications, its ability to achieve design
wins may be limited. Failure to achieve sufficient design wins could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Technical innovations of the type critical to the Company's success are
inherently complex. Any failure by the Company to anticipate or respond
adequately to changes in the requirements of digital consumer product
manufacturers or in the semiconductor manufacturing process, or any significant
delays in the development or introduction of new microprocessor intellectual
property, could have a material adverse effect on the Company's business,
results of operations and financial condition. Moreover, significant technical
innovations generally require a substantial investment before their commercial
viability is determined. There can be no assurance that the Company will have
the financial resources necessary to fund the future development of
microprocessor and related designs. In addition, there can be no assurance that
any enhancements or new generations of the Company's technology, even if
successfully developed, will generate revenue in excess of the costs of
development or not be quickly rendered obsolete by changing consumer
preferences, the introduction of products embodying new technologies or features
or other technological developments in the semiconductor and digital consumer
products industries.
Dependence on Digital Consumer Products Industry. The digital consumer
products industry will be the primary market for the Company's microprocessor
and related designs. The Company's success will be dependent upon the level of
consumer acceptance of the products that incorporate its technology, which may
be affected by changing consumer preferences and the introduction of products
embodying new technologies or features. In addition, certain digital consumer
products such as video game products may present limited opportunities for
design wins due to a limited number of product manufacturers and the length of
product life cycles. Many applications in the digital consumer products
industry, such as handheld personal computers and set-top boxes, have only
recently been introduced to the market and the level of consumer interest and
acceptance is difficult to predict. Factors negatively affecting the digital
consumer products industry and the demand for digital consumer products, such as
the failure to develop industry standards for hardware and software or to
achieve adequate product cost reductions, could have a material adverse effect
on the Company's business, results of operations and financial condition.
Moreover, to the extent that the performance, functionality, price and power
characteristics of the Company's microprocessor designs do not satisfy those
that may be critical to specific digital consumer product applications, the
Company's dependence on the digital consumer products industry may be further
confined to a limited segment of that industry.
Reliance on Manufacturing Partners. The Company does not manufacture or
sell microprocessors containing its technology. Rather, the Company licenses its
technology to semiconductor manufacturers that incorporate the Company's
technology into the products they sell. In some cases, these manufacturing
partners also add custom integration services and derivative design technologies
to the Company's microprocessor designs. Accordingly, the Company's success is
substantially dependent on the adoption and continued use of its technology by
semiconductor manufacturers. The Company faces numerous risks in obtaining
agreements with semiconductor manufacturers on terms consistent with its
business model, including, among others, the lengthy and expensive process of
building a relationship with a potential partner before there is any assurance
of an agreement; persuading large semiconductor companies to work with, to rely
for critical technology on, and to disclose proprietary manufacturing technology
to, the Company; and persuading potential partners to bear certain development
costs associated with the Company's technology and to make the necessary
investment to successfully produce embedded microprocessors using the Company's
technology. Moreover, none of the Company's manufacturing partners is obligated
to license new or future generations of the Company's microprocessor designs.
The Company is also subject to many risks beyond its control that influence
the success of its semiconductor manufacturing partners, including, among
others, the highly competitive environment in which its current and any future
partners operate, the market for their products and the engineering capabilities
and financial and other resources of its partners. The Company also believes
that its principal competition may come from semiconductor
18
<PAGE>
manufacturers, including its current manufacturing partners that internally
develop products using similar or alternative technologies. Any such competition
may adversely affect the Company's existing relationships and its ability to
establish new relationships. Moreover, the Company's relationships with certain
of its existing partners may be negatively affected by its separation from
Silicon Graphics, insofar as Silicon Graphics' status as a customer of such
partners has been a factor in establishing and maintaining such relationships or
in negotiating the financial and other terms of the contractual arrangements
with such partners.
The Company currently has seven semiconductor manufacturing partners. There
can be no assurance that the Company will be successful in maintaining
relationships with its current manufacturing partners or in entering into new
relationships with additional partners. Any failure by the Company to establish
or maintain such relationships could have a material adverse effect on the
Company's business, results of operations and financial condition.
Dependence on Digital Consumer Product Manufacturers. The timing and amount
of royalties received by the Company is directly affected by sales of consumer
products incorporating the Company's technology. Accordingly, the Company's
success is substantially dependent upon the adoption of its technology by
digital consumer product manufacturers. The Company is subject to many risks
beyond its control that influence the success or failure of a particular digital
consumer product manufacturer, including, among others, competition faced by the
manufacturer in its particular industry; market acceptance of the manufacturer's
products; the engineering, marketing and management capabilities of the
manufacturer; technical challenges unrelated to the Company's technology faced
by the manufacturer in developing its products; and the financial and other
resources of the manufacturer. The process of persuading digital consumer
product manufacturers to adopt the Company's technology can be lengthy and, even
if adopted, there can be no assurance that the Company's technology will be used
in a product that is ultimately brought to market, achieves commercial
acceptance or results in meaningful royalties to the Company. The failure of
manufacturers in the digital consumer products industry to adopt the Company's
technology for incorporation into their products could have a material adverse
effect on the Company's business, results of operations and financial condition.
Furthermore, because the Company does not control the business practices of its
licensees, it has no ability to establish the prices at which the products
incorporating its technology are made available to digital consumer product
manufacturers or the degree to which its licensees promote the Company's
technology to such manufacturers.
Competition. Competition in the market for embedded microprocessors is
intense. The Company believes that the principal competitive factors in the
industry are performance, functionality, price, customizability and power
consumption. The Company competes primarily against ARM Holdings plc. and
Hitachi Semiconductor (America) Inc. The Company also competes against certain
semiconductor manufacturers whose product lines include microprocessors for
embedded and non-embedded applications, including Intel Corporation, National
Semiconductor Corporation, Advanced Micro Devices, Inc. and Motorola, Inc. In
addition, the Company must continue to differentiate its microprocessor and
related designs from those available or under development by the internal design
groups of semiconductor manufacturers, including its current and prospective
manufacturing partners. Many of these internal design groups have substantial
programming and design resources and are part of larger organizations, which
have substantial financial and marketing resources. There can be no assurance
that internal design groups will not develop products that compete directly with
those of the Company or will not actively seek to license their own technology
to third-party semiconductor manufacturers. Certain of the Company's competitors
have greater name recognition and customer bases as well as greater financial
and marketing resources than the Company, and such competition could adversely
affect the Company's business, results of operations and financial condition.
Dependence on Key Personnel. The Company's success depends in part on the
continued contributions of its key management, technical, sales and marketing
personnel, many of whom are highly skilled and difficult to replace. In
addition, the Company's business plan requires, and its future operating results
depend in significant part upon, the identification and hiring of additional
highly skilled personnel, particularly technical personnel for its anticipated
research and development activities. Competition for qualified personnel,
particularly those with significant experience in the semiconductor and
microprocessor design industries, is intense. The loss of the services of any of
the key personnel, the inability to attract and retain qualified personnel in
the future or delays in hiring personnel, particularly technical personnel,
could have a material adverse effect on the Company's business, operating
results and financial condition.
19
<PAGE>
Risks Associated with International Operations. A substantial portion of
the Company's revenue is derived from outside the United States. For the fiscal
years ended June 30, 1998, 1997 and 1996, revenue from customers outside the
United States, primarily in Japan, represented approximately 90%, 87% and 83%,
respectively, of the Company's total revenue. The Company anticipates that
revenue from international customers primarily in Asia, will continue to
represent a substantial portion of its total revenue. To date, substantially all
of the Company's revenue from international customers has been denominated in
U.S. dollars. However, to the extent that sales to digital consumer product
manufacturers by the Company's manufacturing partners are denominated in foreign
currencies, royalties received by the Company on such sales could be subject to
fluctuations in currency exchange rates. In addition, if the effective price of
the technology sold by the Company to its partners were to increase as a result
of fluctuations in foreign currency exchange rates, demand for the Company's
technology could fall which would, in turn, reduce the Company's royalties. The
Company is unable to predict the amount of non-U.S. dollar denominated revenue
earned by its licensees. Therefore, the Company has not historically attempted
to mitigate the effect that currency fluctuations may have on its revenue, and
does not presently intend to do so in the future. The relative significance of
the Company's international operations exposes it to a number of additional
risks including political and economic instability, longer accounts receivable
collection periods and greater difficulty in collection of accounts receivable,
reduced or limited protection for intellectual property, export license
requirements, tariffs and other trade barriers and potentially adverse tax
consequences. Several countries in Asia are experiencing a severe economic
crisis, characterized by reduced economic activity, lack of liquidity, highly
volatile foreign currency exchange and interest rates and unstable stock
markets. Several of the Company's semiconductor partners sell products into Asia
that incorporate the Company's microprocessor and related designs. Any negative
impact of the circumstances in Asia on its sales of such products by the
Company's semiconductor partners could have a negative impact on its royalty
revenue. There can be no assurance that the Company will be able to sustain
revenue derived from international customers or that the foregoing factors will
not have a material adverse effect on the Company's business, operating results
and financial condition.
Management of Growth. The Company has limited managerial, financial,
engineering and other resources and may not be equipped to manage successfully
any future periods of rapid growth or expansion. In addition, the Company's
business plan requires that it identify and hire additional highly skilled
technical personnel during fiscal 1999 to staff its anticipated research and
development activities. Recruitment and integration of these additional
employees, as well as any future periods of rapid growth or expansion, can be
expected to place significant strains on the Company's resources, which may be
exacerbated by the Company's recent shift in strategic direction. Digital
consumer product manufacturers as well as the Company's semiconductor
manufacturing partners typically require significant engineering support in the
design, testing and manufacture of products incorporating the Company's
technology. As a result, any increase in the adoption of the Company's
technology will increase the strain on the Company's personnel, particularly its
engineers. The Company's future growth will also depend on its ability to
implement operational, financial and management information and control systems
and procedures necessary to operate as a stand-alone company and without the
financial, operational, managerial and administrative support previously
provided by Silicon Graphics.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
of MIPS Technologies, Inc.
We have audited the accompanying balance sheets of MIPS Technologies, Inc.
(the "Company") as of June 30, 1998 and 1997, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MIPS Technologies, Inc. at
June 30, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998 in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
San Jose, California
July 20, 1998
21
<PAGE>
MIPS TECHNOLOGIES, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................ $ 45 $ --
Accounts receivable ......................................... 250 381
Prepaid expenses and other current assets ................... 618 2,775
--------- ---------
Total current assets .................................... 913 3,156
Equipment and furniture, net .................................. 2,787 15,190
Employee notes receivable ..................................... 996 1,328
--------- ---------
$ 4,696 $ 19,674
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................ $ 3,087 $ 5,834
Accrued liabilities ......................................... 2,356 5,437
Current portion of capital lease obligations ................ -- 331
--------- ---------
Total current liabilities ............................... 5,443 11,602
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.001 par value: 150,000,000 shares
authorized; 36,000,000 shares issued and outstanding ...... 36 36
Additional paid-in capital .................................. 120,041 129,236
Accumulated deficit ......................................... (120,824) (121,200)
--------- ---------
Total stockholders' equity (deficit) .................... (747) 8,072
--------- ---------
$ 4,696 $ 19,674
========= =========
</TABLE>
See accompanying notes.
22
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Royalties ............................... $ 55,980 $ 37,192 $ 19,716
Contract revenue ........................ 830 3,115 17,327
-------- -------- --------
Total revenue ....................... 56,810 40,307 37,043
Costs and expenses (see Note 11
regarding related party transactions with
Silicon Graphics):
Cost of contract revenue ................ 375 1,345 5,580
Research and development ................ 43,446 68,827 48,402
Sales and marketing ..................... 5,307 6,170 6,026
General and administrative .............. 4,685 4,750 4,601
Restructuring charge .................... 2,614 -- --
-------- -------- --------
Total costs and expenses ............ 56,427 81,092 64,609
-------- -------- --------
Operating income (loss) ..................... 383 (40,785) (27,566)
Interest expense ............................ (7) (50) (99)
-------- -------- --------
Net income (loss) ........................... $ 376 $(40,835) $(27,665)
======== ======== ========
Net income (loss) per basic and diluted share $ 0.01 $ (1.13) $ (0.77)
======== ======== ========
Common shares outstanding-basic ............. 36,000 36,000 36,000
======== ======== ========
Common shares outstanding-diluted ........... 36,033 36,000 36,000
======== ======== ========
</TABLE>
See accompanying notes.
23
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid-in- Accumulated Equity
Stock Capital Deficit (Deficit)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balances at June 30, 1995 ...... $ 36 $ 48,928 $ (52,700) $ (3,736)
Net loss ................... -- -- (27,665) (27,665)
Net financing provided from
Silicon Graphics ......... -- 35,254 -- 35,254
--------- --------- --------- ---------
Balances at June 30, 1996 ...... 36 84,182 (80,365) 3,853
Net loss ................... -- -- (40,835) (40,835)
Net financing provided from
Silicon Graphics ......... -- 45,054 -- 45,054
--------- --------- --------- ---------
Balances at June 30, 1997 ...... 36 129,236 (121,200) 8,072
Net income ................. -- -- 376 376
Net financing returned to
Silicon Graphics ......... -- (1,965) -- (1,965)
Net equipment transferred to
Silicon Graphics ......... -- (7,230) -- (7,230)
--------- --------- --------- ---------
Balances at June 30, 1998 ...... $ 36 $ 120,041 $(120,824) $ (747)
========= ========= ========= =========
</TABLE>
See accompanying notes.
24
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss) ............................................. $ 376 $(40,835) $(27,665)
Adjustments to reconcile net income to cash
provided by (used in) operations:
Depreciation ................................................ 5,044 7,343 8,201
Restructuring charge ........................................ 2,114 -- --
Other non-cash charges ...................................... 362 99 28
Changes in operating assets and liabilities:
Accounts receivable ....................................... 131 146 (218)
Prepaid expenses and other current assets ................. 2,157 (728) (300)
Employee notes receivable ................................. 92 (1,332) --
Accounts payable and accrued liabilities .................. (5,828) 574 (7,214)
-------- -------- --------
Net cash flow provided by (used in) operating activities,
excluding Silicon Graphics financing .................. 4,448 (34,733) (27,168)
Investing activities-- capital expenditures ..................... (2,107) (9,913) (7,257)
Financing activities:
Payments on capital lease obligations ......................... (331) (408) (829)
Net financing provided from (returned to) Silicon Graphics .... (1,965) 45,054 35,254
-------- -------- --------
Net cash provided by (used in) financing activities ..... (2,296) 44,646 34,425
Net increase in cash ............................................ 45 -- --
Cash, beginning of year ......................................... -- -- --
-------- -------- --------
Cash, end of year ............................................... $ 45 $ -- $ --
======== ======== ========
Supplemental disclosures of cash flow information:
Net equipment transferred to Silicon Graphics ............... $ 7,230 $ -- $ --
======== ======== ========
Interest paid ............................................... $ 13 $ 50 $ 99
======== ======== ========
</TABLE>
See accompanying notes.
25
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1. Formation and Description of Business
Formation of MIPS Technologies, Inc. (the "Company"). In June 1992, Silicon
Graphics formed the Company following the merger of MIPS Computer Systems, Inc.
into Silicon Graphics, which was accounted for as pooling of interests. MIPS
Computer Systems, Inc. was founded in 1984 and was engaged in the design and
development of RISC microprocessors for the computer systems and embedded
markets. Silicon Graphics adopted the MIPS architecture for its computer systems
in 1988 and acquired MIPS Computer Systems, Inc. in 1992. Following the
acquisition, Silicon Graphics continued the MIPS microprocessor business through
its MIPS Group (a division of Silicon Graphics), which focused primarily on the
development of high-performance microprocessors for Silicon Graphics'
workstations and servers. Until the last few years, cost considerations limited
the broader use of these microprocessors. However, as the cost to design and
manufacture microprocessors based on the MIPS technology decreased, the MIPS
Group sought to penetrate the consumer market, both through supporting and
coordinating the efforts of the MIPS semiconductor partners and most notably, by
partnering with Nintendo in its design of the Nintendo 64 video game player and
related cartridges. Revenues related to sales of Nintendo 64 game players and
related cartridges currently account for the substantial majority of the
Company's revenue. In order to increase the focus of the MIPS Group on the
design and development of microprocessor applications dedicated to the embedded
market, in December 1997, Silicon Graphics initiated a plan to separate the
business of the MIPS Group from its other operations.
In April 1998, the Board of Directors of the Company approved a
transaction, pursuant to which, Silicon Graphics transferred to the Company the
assets and liabilities related to the design and development of microprocessor
intellectual property for embedded market applications (the "Separation"). In
connection with the Separation, the Company and Silicon Graphics entered into a
Corporate Agreement that provides for certain pre-emptive rights of Silicon
Graphics to purchase shares of the Company's capital stock, registration rights
related to shares of the Company's capital stock owned by Silicon Graphics and
covenants against certain actions by the Company for as long as Silicon Graphics
owns a majority of the Company's outstanding Common Stock. Furthermore, the
Company and Silicon Graphics entered into a Management Services Agreement
pursuant to which Silicon Graphics will provide certain services to the Company
following the Separation on an interim or transitional basis.
As of June 30, 1998, the Company is a wholly owned subsidiary of Silicon
Graphics.
Basis of Presentation. The accompanying financial statements reflect the
operations of the Company's predecessor, the MIPS Group, through June 30, 1998.
The accompanying balance sheets have been prepared using the historical basis of
accounting and include all of the assets and liabilities specifically
identifiable to the Company and, for certain liabilities that are not
specifically identifiable, estimates have been used to allocate a portion of
Silicon Graphics' liabilities to the Company. Cash management for the Company
has been done by Silicon Graphics on a centralized basis and all cash provided
by Silicon Graphics has been recorded as interest-free financing from Silicon
Graphics in these financial statements.
The statements of operations include all revenue and costs attributable to
the Company, including a corporate allocation of the costs of facilities and
employee benefits. Additionally, incremental corporate administration, finance
and management costs are allocated to the Company based on certain methodologies
that management believes are reasonable under the circumstances (see Note 11).
Note 2. Summary of Significant Accounting Policies
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial statements.
Revenue Recognition. The Company derives revenue from fees for the transfer
of proven and reusable intellectual property components or the performance of
engineering services to customer specifications. The Company enters into
licensing agreements that provide licensees the right to incorporate the
Company's intellectual property
26
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
components in their products with terms and conditions that have historically
varied by licensee. Generally these agreements include one or more of the
following elements: (i) royalty payments, which are payable upon the sale of a
licensee's products, (ii) nonrefundable technology license fees, which are
payable upon the transfer of intellectual property and (iii) engineering service
fees, which generally are payable upon the Company's achievement of defined
milestones. No upgrades or modifications to a licensed product are provided.
The Company classifies all revenue that involves the future sale of a
licensee's products as royalty revenue. Royalty revenue generally is recognized
in the quarter in which a report is received from a licensee detailing the
shipments of products incorporating the Company's intellectual property
components (i.e., in the quarter following the sale of licensed product by the
licensee). The Company classifies all revenue that does not involve the future
sale of a licensee's products, primarily license fees and engineering service
fees, as contract revenue. License fees are recognized upon the execution of the
license agreement and transfer of intellectual property, provided no further
significant performance obligations exist. Engineering services, which are
performed on a best efforts basis, are recognized as revenue when the defined
milestones are completed and the milestone payment is probable of collection.
Milestones have historically been formulated to correlate with the estimated
level of effort and related costs have been expensed as incurred.
Certain license agreements provide for limited product support that
consists of an identified customer contact at the Company and telephonic or
e-mail product support. Such support arrangements have been insignificant to
date.
Equipment and Furniture. Equipment and furniture are stated at cost and
depreciation is computed using the straight-line method. Useful lives of three
to seven years are used for equipment and furniture and fixtures.
Prepaid Expenses and Other Current Assets. Prepaid expenses and other
current assets consist principally of amounts paid by the Company in advance for
maintenance contracts on its computer-aided software design tools. These
contracts typically cover a one-year period, over which the cost is amortized.
Stock-Based Compensation. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-based Compensation" ("SFAS 123"). As allowed by SFAS 123, the Company
accounts for stock-based employee compensation arrangements under the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB25"). As a result, no expense
had been recognized for options to purchase common stock of Silicon Graphics
(prior to the Separation) or of the Company granted with an exercise price equal
to fair market value at the date of grant or in connection with the Silicon
Graphics stock purchase plan prior to the Separation (see Note 10). For Silicon
Graphics stock options that were granted and restricted Silicon Graphics common
stock issued at discounted prices, the Company recognizes compensation expense
over the vesting period for the difference between the exercise or purchase
price and the fair market value on the measurement date.
Earnings per Share. The Company follows the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires the presentation of basic and fully diluted earnings per share.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares that were
outstanding during the period. Diluted earnings per share is computed giving
effect to all dilutive potential common shares that were outstanding for any
periods presented in these financial statements. The Company effected a
360,000-for-one split of its common stock in May 1998 (see Note 10), and
accordingly, the Company has presented share and net income (loss) per share
data in the financial statements giving effect to that split.
27
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss) available to common stockholders . $ 376 $(40,835) $(27,665)
======== ======== ========
Denominator:
Shares used in computing basic net income (loss)
per share-weighted-average shares ................ 36,000 36,000 36,000
Effect of dilutive securities-employee stock options 33 -- --
-------- -------- --------
Shares used in computing diluted net income (loss)
per share-adjusted weighted-average shares and
common share equivalents ......................... 36,033 36,000 36,000
======== ======== ========
Basic net income (loss) per share .................. $ 0.01 $ (1.13) $ (0.77)
Diluted net income (loss) per share ................ $ 0.01 $ (1.13) $ (0.77)
</TABLE>
Recent Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), and No. 131, "Disclosures
Segments of an Enterprise and Related Information" ("SFAS 131"), collectively
the "Statements." The Company is required to adopt these Statements in fiscal
1999. SFAS 130 establishes new standards for reporting and displaying
comprehensive income and its components. SFAS 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation and major customers. Adoption of these Statements is expected
to have no impact on the Company's results of operations or financial condition.
In March 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS 132"). SFAS 132 does not change the recognition or measurement
of pension or postretirement benefit plans, but revises and standardizes
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS 132 in fiscal 1999 will have no impact on the Company's results
of operations or financial condition.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Financial Instruments and for Hedging
Activities" ("SFAS 133"), which provides comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. The
Company is required to adopt SFAS 133 in fiscal 2000 and it is not anticipated
to have an impact on the Company's results of operations or financial condition
when adopted.
Note 3. Business Risk and Customer Concentration
The Company operates in the intensely competitive semiconductor industry,
which has been characterized by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and heightened foreign and
domestic competition. Significant technological changes in the industry could
affect operating results adversely. Due to the Company's focus on microprocessor
designs dedicated to the embedded market, including digital consumer products,
the Company expects to experience seasonal fluctuations in its revenue and
operating results.
The Company markets and licenses its technology to a limited number of
customers and generally does not require collateral. At June 30, 1998 and 1997,
one customer accounted for 100% of accounts receivable. During the years ended
June 30, 1998 and 1997, revenue from two customers represented an aggregate of
88% and 85% of total revenue, respectively, and during the year ended June 30,
1996, revenue from three customers represented an aggregate of 72% of total
revenue. The Company expects that a significant portion of its future revenue
will continue to be generated by a limited number of customers. The nonrenewal
or expiration of contracts between the Company and its current customers could
adversely affect near-term future operating results.
28
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
A substantial portion of the Company's revenue is derived from customers
outside the United States (see Note 13). The Company anticipates that revenue
from international customers will continue to represent a substantial portion of
its total revenue. To date, substantially all of the revenue from international
customers has been denominated in U.S. dollars. However, to the extent that
sales to digital consumer product manufacturers by the Company's manufacturing
partners are denominated in foreign currencies, royalties received by the
Company on such sales could be subject to fluctuations in currency exchange
rates. In addition, if the effective price of the technology sold by the Company
to its partners were to increase as a result of fluctuations in foreign currency
exchange rates, demand for the Company's technology could fall which would, in
turn, reduce the Company's revenues. The relative significance of the Company's
international operations exposes it to a number of additional risks including
political and economic instability, longer accounts receivable collection
periods and greater difficulty in collection of accounts receivable, reduced or
limited protection for intellectual property, export license requirements,
tariffs and other trade barriers and potentially adverse tax consequences. There
can be no assurance that the Company will be able to sustain revenue derived
from international customers or that the foregoing factors will not have a
material adverse effect on the Company's business, operating results and
financial condition.
Note 4. Restructuring Charge
The restructuring charge recorded in fiscal 1998 includes approximately
$500,000 in severance and related costs (17 employees, a majority of which
supported research and development activities) and $2.1 million in fixed asset
write-downs related to the Company's shift in strategic direction. Substantially
all the severance and related costs were paid and 16 employees were terminated
as of June 30, 1998.
Note 5. Employee Notes Receivable
The Company has loans outstanding to employees and an officer. Such loans
are payable upon maturity and have terms ranging from three to five years.
Approximately $432,000 and $776,000 of these loans at June 30, 1998 and 1997,
respectively, relate to loans that are forgiven by the Company on a periodic
basis as the employees or officer remains employed by the Company. Loan
forgiveness charged to expense was approximately $240,000, $99,000 and $28,000
in fiscal 1998, 1997 and 1996, respectively. Upon termination of employment, the
unamortized balance of the loans becomes due. Such forgivable loans bear no
interest. The remaining employee loans bear interest at rates ranging from 7.19%
to 7.25% and are due on dates ranging from September 1999 to March 2002.
Note 6. Equipment and Furniture
The components of equipment and furniture are as follows (in thousands):
June 30,
------------------------
1998 1997
-------- --------
Equipment ............................ $ 7,990 $ 45,918
Equipment under capital lease ........ -- 1,198
Furniture and fixtures ............... 421 516
-------- --------
8,411 47,632
Accumulated depreciation ............. (5,624) (32,442)
-------- --------
Equipment and furniture, net ......... $ 2,787 $ 15,190
======== ========
Note 7. Accrued Liabilities
The components of accrued liabilities are as follows (in thousands):
June 30,
------------------------
1998 1997
-------- --------
Accrued compensation and
employee-related expenses ......... $ 194 $ 4,163
Development and marketing funds ...... 1,555 1,053
Other accrued liabilities ............ 607 221
-------- --------
$ 2,356 $ 5,437
======== ========
29
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
Accrued compensation and employee-related expenses at June 30, 1997 include
approximately $1.6 million in accrued vacation and $1.2 million in accrued
employee relocation expenses. In connection with the Separation, all accrued
vacation amounts as of May 31, 1998 were paid to the Company's employees. The
amount accrued at June 30, 1998 represents accrued vacation costs from June 1,
1998 to June 30, 1998. The development and marketing funds represent amounts
received from certain of the Company's customers to be used in joint development
and marketing programs.
Note 8. Capital Lease Obligations
The Company's capital lease obligations pertaining to leased equipment
matured in fiscal 1998.
Note 9. Income Taxes
The net income and losses incurred in fiscal years 1998, 1997 and 1996 are
primarily attributable to the operations of the Company as a division of Silicon
Graphics and were included in the income tax returns filed by Silicon Graphics.
In light of both historical losses incurred, as well as the fact that, by
operation of the tax sharing agreement, the Company will not receive any benefit
for losses incurred or have any tax liability for any income earned up to the
closing of the initial public offering, no income tax provision or benefit has
been reflected for the periods presented.
Subsequent to the closing of the initial public offering, the Company,
while still a part of Silicon Graphics' consolidated group for federal income
tax purposes, is responsible for its income taxes through a tax sharing
agreement with Silicon Graphics. Therefore, to the extent the Company produces
taxable income, losses or credits, it will make or receive payments as though it
filed separate federal, state and local income tax returns.
The Company and Silicon Graphics have entered into a tax sharing agreement
pursuant to which they will make payments between them such that, with respect
to any period, the amount of taxes to be paid by the Company, subject to certain
adjustments, will be determined as though the Company were to file separate
federal, state and local income tax returns.
In general, the Company will be included in Silicon Graphics' consolidated
group for federal income tax purposes for so long as Silicon Graphics
beneficially owns at least 80% of the total voting power and value of the
outstanding common stock.
At June 30, 1998 and 1997, the Company's deferred tax assets and the
related valuation allowance were immaterial.
Note 10. Stockholders' Equity
In May 1998, the Board of Directors of the Company authorized and the
Company's Stockholder later approved a 360,000-for-one stock split of the
Company's common stock and an amendment to the Company's Certificate of
Incorporation for an increase in the number of authorized shares of common stock
to 150,000,000 shares. All prior year financial statements have been restated to
effect the stock split.
1998 Long-Term Incentive Plan. The 1998 Long-Term Incentive Plan (the
"Plan") was adopted by the Board of Directors of the Company and approved by the
Company's Stockholder in May 1998. The Plan authorized the issuance of various
forms of stock-based awards including incentive and non-qualified stock options,
stock appreciation rights, stock awards and performance unit awards to officers
and other key employees and consultants. Stock options are granted at an
exercise price of not less than the fair value on the date of grant; the prices
of other stock awards are determined by the Board of Directors. Stock options
generally vest over a fifty-month period from the date of grant. An aggregate of
6,600,000 shares of common stock may be issued under the Plan and are reserved
for future issuance.
30
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
The stock option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding Options
------------------------------
Shares available Number of Weighted Average
for Grant Shares Exercise Price
----------- -------- ---------------
<S> <C> <C> <C>
Balance at July 1, 1997 .............. -- -- --
Shares authorized for issuance ....... 6,600,000 -- --
Options granted ...................... (2,996,900) 2,996,900 $ 12.00
Balance at June 30, 1998 ............. 3,603,100 2,996,900 $ 12.00
========== =========
</TABLE>
At June 30, 1998, the weighted average contractual life of the options
outstanding was 10 years. There are no options exercisable at June 30, 1998.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors of the Company and
approved by the Company's Stockholder in May 1998. The purpose of the Purchase
Plan is to provide employees of the Company who participate in the Purchase Plan
with an opportunity to purchase common stock of the Company through payroll
deductions. Under this Purchase Plan eligible employees may purchase stock at
85% of the lower of the fair market value of the Common Stock (a) on the date of
commencement of the offering period or (b) the applicable exercise date within
such offering period. A 24-month offering period commences every six months,
generally at May 1 and November 1 of each year. The offering period is divided
into four six month exercise periods. The exercise date is the last day of the
particular six month exercise period within the offering period. If the fair
market value of the Company's Common Stock on the first day of any exercise
period is less than on the first day of that offering period, all employees
participating in the Purchase Plan on the first day of such exercise period will
be deemed to have withdrawn from the offering period on the first day of such
exercise period and to have enrolled in the new offering period commencing on
that date. Purchases are limited to 10% of each employee's eligible
compensation. At June 30, 1998 no shares have been issued to employees of the
Company under the Purchase Plan. Presently 600,000 shares of Common Stock are
reserved for future issuances under the Purchase Plan, and in addition there
will be an amount added annually on July 1 of each year equal to the lesser of
one-half of one percent of the outstanding shares of Common Stock on a fully
diluted basis or 600,000 shares or a lesser amount as determined by the Board.
Directors' Stock Option Plan. The Board of Directors of the Company adopted
and the Company's Stockholder approved the Directors' Stock Option Plan (the
"Director Plan") in July 1998. The plan authorizes 600,000 shares of Common
Stock for issuance plus an annual increase each July 1st equal to the lesser of
(i) 100,000 shares, (ii) the number of shares subject to option granted in the
prior one year period, or (iii) a lesser amount determined by the Board. Upon a
non-employee director's election or appointment to the Board, he or she will
automatically receive a non-statutory stock option to purchase 40,000 shares of
Common Stock. Each director who has been a non-employee director for at least
six months will automatically receive a non-statutory stock option to purchase
10,000 shares of Common Stock each year on the date of the annual stockholder
meeting. All stock options are granted an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. Stock options
generally vest over a 50-month period from the date of the grant. As of June 30,
1998, no shares had been issued to directors of the Company under the Director
Plan.
Non-U.S. Stock Purchase Plan. The Non-U.S. Stock Purchase Plan (the
"Non-U.S. Purchase Plan") was adopted by the Board in July 1998. The purpose of
the Non-U.S. Purchase Plan is to provide employees and consultants of the
Company who do not provide services in the United States and who participate in
the Non-U.S. Purchase Plan with an opportunity to purchase Common Stock of the
Company at the same discount and subject to the same general rules as the
Company's Employees Stock Purchase Plan. The Non-U.S. Purchase Plan, like the
Purchase Plan, has 24-month offering periods commencing every six months and
each offering period is divided into four six-month exercise periods. Purchases
are limited to ten percent of each employee's and consultant's eligible
compensation. As of June 30, 1998, no shares had been issued to employees or
consultants of the Company under the Non-U.S. Purchase Plan and 60,000 shares of
Common Stock are reserved for issuance.
31
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
Silicon Graphics Stock Award Plans. While employees of Silicon Graphics,
certain employees of the Company were granted options to purchase Silicon
Graphics common stock and were awarded restricted shares of Silicon Graphics
common stock. In addition, certain employees of the Company purchased Silicon
Graphics common stock through the Silicon Graphics stock purchase plan. In
connection with their acceptance of employment with the Company, employees of
the Company previously employed by Silicon Graphics have mutually agreed with
Silicon Graphics that all unvested options to purchase Silicon Graphics common
stock and unvested restricted shares of Silicon Graphics common stock will be
forfeited. In addition, such individuals have 30 or 90 days from May 29, 1998
(depending on the terms of the option grant) to exercise any vested options to
purchase Silicon Graphics common stock, and any vested options that are not
exercised will be forfeited.
Silicon Graphics has various stock award plans, which provide for the grant
of incentive and nonstatutory stock options and the issuance of restricted stock
to employees. Incentive stock options are granted at not less than the fair
market value on the date of grant; the prices of nonstatutory stock option
grants and restricted stock were determined by the board of directors of Silicon
Graphics. Under the plans, options and restricted stock generally vest over a
fifty-month period from the date of grant.
Silicon Graphics stock option activity related to employees of the Company
is summarized as follows:
<TABLE>
<CAPTION>
Outstanding Options
------------------------------
Number of Weighted Average
Shares Exercise Price
---------- ----------------
<S> <C> <C>
Balance at June 30, 1995 ............................ 1,717,720 $17.94
Options granted ................................... 772,440 $26.98
Options exercised ................................. (52,039) $ 9.97
Options canceled .................................. (649,967) $ 7.40
----------
Balance at June 30, 1996 ............................ 1,788,154 $22.26
Options granted ................................... 1,641,064 $21.00
Options exercised ................................. (148,748) $10.56
Options canceled .................................. (1,705,085) $23.90
----------
Balance at June 30, 1997 ............................ 1,575,385 $18.17
Options granted.................................... 161,861 $12.85
Options exercised.................................. (113,427) $10.77
Options canceled................................... (1,493,260) $18.02
----------
Balance at June 30, 1998............................. 130,559 $19.62
==========
</TABLE>
Additional information about outstanding options to purchase Silicon
Graphics common stock held by employees of the Company at June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-------------------------------------------------
Weighted-Average
Range of Number of Contractual Life Weighted-Average
Exercise Price Shares (in years) Exercise Price
-------------- ------------ ----------- ----------------
<S> <C> <C> <C>
$ 8.06-$11.69...................... 11,577 6.94 $10.99
$12.63-$18.88...................... 53,430 7.86 $18.14
$20.00-$30.13...................... 65,552 8.02 $22.35
-------
$ 8.06-$30.13...................... 130,559 7.86 $19.62
=======
</TABLE>
Shares of restricted Silicon Graphics common stock awarded to employees of
the Company in fiscal 1998, 1997 and 1996 were 27,000 shares, 83,500 shares and
40,000 shares, respectively.
At June 30, 1998, 1997 and 1996 there were 130,559, 480,629 and 856,711
exercisable options to purchase Silicon Graphics common stock held by employees
of the Company, respectively. At June 30, 1998, there were no shares of
restricted Silicon Graphics stock held by employees of the Company. At June 30,
1997 and 1996, 50,125
32
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
and 35,000 shares of restricted Silicon Graphics stock held by employees of the
Company were subject to repurchase, respectively.
Silicon Graphics Stock Purchase Plan. Silicon Graphics has an employee
stock purchase plan under which eligible employees may purchase stock at 85% of
the lower of the closing prices for the stock at the beginning of a twenty
four-month offering period or the end of each six-month purchase period. The
Purchase periods generally begin in May and November. Purchases are limited to
10% of each employee's compensation. Shares issued to employees of the Company
under this Plan in fiscal 1998, 1997 and 1996 were 101,292 shares, 135,808
shares and 76,084 shares, respectively. Former employees of Silicon Graphics are
not eligible to participate in this Plan after their acceptance of employment
with the Company.
Grant Date Fair Values. The weighted average estimated fair value of
Silicon Graphics employee stock options granted at grant date market prices
during fiscal 1998, 1997 and 1996 was $6.02, $8.08 and $11.32 per share,
respectively. The weighted average exercise price of Silicon Graphics employee
stock options granted at grant date market prices during fiscal 1998, 1997 and
1996 was $14.89, $20.70 and $29.66 per share, respectively. The weighted average
estimated fair value of Silicon Graphics employee stock options granted at below
grant date market prices during fiscal 1997 and 1996 was $13.09 and $17.07 per
share, respectively. The weighted average exercise price of Silicon Graphics
employee stock options granted at below grant date market prices during 1997 and
1996 was $15.65 and $21.35 per share, respectively. There were no Silicon
Graphics options granted at below grant date market price during fiscal 1998.
The weighted average estimated fair value of Silicon Graphics restricted stock
granted during fiscal 1998, 1997 and 1996 was $24.37, $23.37 and $27.30 per
share, respectively. The weighted average estimated fair value of shares granted
under the Silicon Graphics stock purchase plan during fiscal 1998, 1997 and 1996
was $6.88, $7.85 and $15.09 per share, respectively.
The weighted average estimated fair value of the Company's employee stock
options granted at grant date market prices during fiscal 1998 was $8.71 per
share.
The weighted average fair value of Silicon Graphics options granted has
been estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
Employee Stock Options Stock Purchase Plan Shares
---------------------------- ----------------------------
Years Ended June 30, Years Ended June 30,
---------------------------- ----------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years) ............... 2.7 2.7 3.8 0.5 0.5 0.5
Risk-free interest rate ................ 5.74% 6.38% 5.18% 5.72% 5.45% 5.49%
Volatility ............................. 0.61 0.50 0.45 0.79 0.57 0.45
Dividend yield ......................... 0% 0% 0% 0% 0% 0%
</TABLE>
The weighted average fair value of Company options granted has been
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for the activity under the Company's
Plans:
Employee Stock Options
Year Ended June 30, 1998
------------------------
Expected life (in years) ...................... 5.0
Risk-free interest rate ....................... 5.66%
Volatility .................................... 0.70
Dividend yield ................................ 0%
Pro Forma Information. The Company has elected to follow APB 25 in
accounting for its employee stock options to purchase both Silicon Graphics and
the Company's common stock. Under APB 25, no compensation expense is recognized
in the Company's financial statements except in connection with the granting of
restricted
33
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
stock for nominal consideration and unless the exercise price of the employee
stock options is less than the market price of the underlying stock on the date
of grant. Total compensation expense recognized in the Company's financial
statements for stock-based awards under APB 25 for fiscal 1998, 1997 and 1996
was $1.0 million, $1.7 million and $0.5 million, respectively.
Pro forma information regarding net loss and loss per share has been
determined as if the Company had accounted for Silicon Graphics and its employee
stock options and employee stock purchase plans under the fair value method
prescribed by SFAS 123. For purposes of pro forma disclosures, the estimated
fair value of the stock awards is amortized to expense over the vesting periods
of such awards.
The Company's pro forma information is as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Pro forma net loss ............................ $ (738) $ (46,228) $ (30,041)
Pro forma basic and diluted net loss per share $ (0.02) $ (1.28) $ (0.83)
</TABLE>
The historical pro forma impact of applying the fair value method
prescribed by SFAS 123 is not representative of the impact that may be expected
in the future due to changes resulting from the separation from Silicon Graphics
and the establishment of the Company's Plans during 1998.
Note 11. Related Party Transactions
Funding. The Company has utilized Silicon Graphics' centralized cash
management services and processes related to receivables, payables, payroll and
other activities. The Company's net cash requirements have been funded by
Silicon Graphics. Net financing provided to the Company by Silicon Graphics in
fiscal 1997 and 1996 was approximately $45.1 million and $35.3 million,
respectively. There was a net return of capital to Silicon Graphics by the
Company of approximately $9.2 million in fiscal 1998. The average balance due to
Silicon Graphics during fiscal 1998, 1997 and 1996 was approximately $125
million, $107 million and $67 million, respectively.
Corporate Services. Silicon Graphics allocates a portion of its domestic
corporate expenses to its divisions, including the Company. In addition, in
accordance with Staff Accounting Bulletin No. 55, certain additional allocations
have been reflected in these financial statements. These expenses have included
corporate communications, management, compensation and benefits administration,
payroll, accounts payable, income tax compliance, treasury and other
administration and finance overhead. Allocations and charges were based on
either a direct cost pass-through or a percentage allocation for such services
provided based on factors such as net sales, headcount and relative expenditure
levels. Such allocations and corporate charges totaled $8.5 million, $11.0
million and $9.0 million for the years ended June 30, 1998, 1997 and 1996,
respectively.
In June 1998, the Company and Silicon Graphics has entered into the
Management Services Agreement, pursuant to which Silicon Graphics will provide
certain administrative and corporate support services to the Company on an
interim or transitional basis, including accounting, treasury, tax, facilities
and information services. Specified charges for such services are generally
intended to allow Silicon Graphics to recover the fully allocated direct costs
of providing the services, plus all out-of-pocket costs and expenses, but
without any profit. The Management Services Agreement will have a three-year
term and will be subject to automatic termination at such time as Silicon
Graphics' beneficial ownership interest in the Company's outstanding common
stock ceases to exceed 50%. In addition, either Silicon Graphics or the Company
may terminate the Management Services Agreement with respect to one or more of
the services provided thereunder upon giving at least 30 days prior written
notice to the other party.
Management believes that the basis used for allocating corporate services
is reasonable. While the terms of these transactions may differ from those that
would result from transactions among unrelated parties, management does not
believe such differences would be material.
34
<PAGE>
MIPS Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS (Continued)
Facilities. The Company's executive, administrative and technical offices
currently occupy space in a building subleased from Silicon Graphics in Mountain
View, California. Payments by the Company to Silicon Graphics under this
sublease are expected to be $611,000, $743,000, $776,000 and $741,000 in fiscal
years 1999, 2000, 2001 and 2002, respectively. The sublease will terminate on
May 31, 2002, subject to earlier termination in certain circumstances.
Note 12. Contingencies
In February 1998, the Company received a notice asserting that the R10000
microprocessor and potentially other microprocessors designed by the Company
allegedly infringe a patent originally assigned to Control Data Corporation. The
Company is evaluating these claims.
From time to time, the Company receives communications from third parties
asserting patent or other rights covering the Company's products and
technologies. Based upon the Company's evaluation, it may take no action or it
may seek to obtain a license. There can be no assurance in any given case that a
license will be available on terms the Company considers reasonable, or that
litigation will not ensue.
Management is not aware of any pending disputes that would be likely to
have a material adverse effect on the Company's business, results of operations
or financial condition.
Note 13. Industry and Geographic Segment Information
The Company operates in one industry segment. The Company's revenue by
geographic area is as follows (in thousands):
Years Ended June 30,
-------------------------------------
1998 1997 1996
------- ------- -------
United States ........... $ 5,621 $ 5,066 $ 6,123
Japan ................... 50,939 35,241 22,620
Europe .................. 250 -- 6,300
Rest of World ........... -- -- 2,000
------- ------- -------
Total revenue ........... $56,810 $40,307 $37,043
======= ======= =======
Note 14. Subsequent Events
On July 6, 1998, the Company completed its initial public offering of
5,500,000 shares of its common stock pursuant to a Registration Statement on
Form S-1 (File No. 333-50643) declared effective by the Securities and Exchange
Commission on June 29, 1998. The offering consisted of the sale of 4,250,000
shares of common stock by Silicon Graphics for net proceeds of approximately
$55.3 million and 1,250,000 shares of common stock by the Company for net
proceeds of $16.0 million. Upon completion of the Offering there were 37,250,000
shares of common stock outstanding.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers and Directors
The executive officers and directors of the Company, and their ages as of
June 30, 1998, are as follows:
Name Age Position
---- --- --------
John E. Bourgoin ................ 52 Chief Executive Officer, President and
Director
Lavi Lev ........................ 41 Senior Vice President, Engineering
Kevin C. Eichler ................ 38 Vice President and Chief Financial
Officer
Derek Meyer ..................... 38 Vice President, Sales and Marketing
Sandy Creighton ................. 45 Vice President, General Counsel and
Secretary
Dr. Forest Baskett .............. 55 Director
Kenneth L. Coleman .............. 55 Director
William M. Kelly ................ 44 Director
Teruyasu Sekimoto ............... 58 Director
John E. Bourgoin has served as Chief Executive Officer of the Company since
February 1998 and President of the Company since September 1996, and has been a
director of the Company since May 1997. Mr. Bourgoin has also served as a Senior
Vice President of Silicon Graphics from September 1996 through May 1998. Prior
to joining Silicon Graphics, Mr. Bourgoin was Group Vice President, Computation
Products Group at Advanced Micro Devices, Inc.
Lavi Lev has served as Senior Vice President--Engineering of the Company
since March 1998, and was Vice President--Engineering of Silicon Graphics from
1996 to March 1998. From 1995 to 1996, he served as Vice President, Engineering
at MicroUnity Systems Engineering and between 1992 and 1995 he was a manager at
Sun Microsystems, Inc. Prior to joining Sun Microsystems, Inc., Mr. Lev was
employed by Intel Corporation and was involved in the development of the Pentium
microprocessor.
Kevin C. Eichler has served as Vice President and Chief Financial Officer
of the Company since May 1998. Prior to joining the Company and since 1996, Mr.
Eichler served as Vice President, Finance, Chief Financial Officer, Treasurer
and Secretary of Visigenic Software Inc., an independent provider of software
tools for distributed object technologies for the Internet, Intranet and
enterprise computing environments. From 1995 to 1996, he served as Executive
Vice President, Finance and Chief Financial Officer of National Insurance Group,
a provider of technology solutions for financial services and related companies.
From 1991 to 1995, Mr. Eichler served as Executive Vice President, Finance and
Chief Financial Officer of Mortgage Quality Management, Inc., a national
provider of quality control services and technologies to residential mortgage
lenders. Prior to 1991, Mr. Eichler held management positions with NeXT Software
and Microsoft.
Derek Meyer joined the Company in May 1996 as Director of Worldwide
Marketing and Sales and became Vice President--Sales and Marketing in March
1998. Prior to joining the Company and since 1994, Mr. Meyer served as marketing
director for the TriMedia division of Philips Semiconductors and prior to that
time he was director of SPARC marketing for Sun Microsystems, Inc.
Sandy Creighton joined the Company in June 1998 as Vice President, General
Counsel and Secretary. Prior to joining the Company and since 1991, Ms.
Creighton was Deputy General Counsel at Sun Microsystems, Inc.
Dr. Forest Baskett has served as a director of the Company since January
1998. Since 1990, Dr. Baskett has served as Senior Vice President, Research and
Development of Silicon Graphics, and since 1994, has also served as its Chief
Technology Officer.
Kenneth L. Coleman has served as a director of the Company since January
1998. Since April 1997, Mr. Coleman has been Senior Vice President, Customer and
Professional Services of Silicon Graphics. Prior to that time, he was Senior
Vice President, Administration of Silicon Graphics.
36
<PAGE>
William M. Kelly has served as a director of the Company since January
1998. He joined Silicon Graphics in 1994 as Vice President, Business
Development, General Counsel and Secretary and, since 1997, has been Senior Vice
President, Corporate Operations of Silicon Graphics. During 1996, Mr. Kelly also
served as Senior Vice President, Silicon Interactive Group of Silicon Graphics
and he served as acting Chief Financial Officer of Silicon Graphics from May
1997 to February 1998. Prior to joining Silicon Graphics, Mr. Kelly was an
attorney in private practice.
Teruyasu Sekimoto has served as a director of the Company since January
1998. Mr. Sekimoto joined Silicon Graphics in 1987 as representative director of
Silicon Graphics Japan. In 1991, he became Vice President, North Pacific Area
and since 1995 has served as Senior Vice President, East Asia.
Upon completion of the Offering on July 6, 1998, the size of the Board of
Directors has increased by two, and the Company's stockholder has elected the
following two additional directors who are not associated with the Company or
Silicon Graphics:
Anthony B. Holbrook, age 59. Mr. Holbrook retired as Chief Technical
Officer of Advanced Micro Devices, Inc. in August 1994. Mr. Holbrook joined
Advanced Micro Devices, Inc. in 1973 and served in a number of executive
capacities. He was elected a corporate officer in 1978 and in 1982 was named
Executive Vice President and Chief Operating Officer. In 1986, Mr. Holbrook was
named President of Advanced Micro Devices, Inc. and was elected to the board of
directors. In 1989, he moved from Chief Operating Officer to Chief Technical
Officer and in 1990 from President to Vice Chairman, a position he held until
April 1996. Prior to joining Advanced Micro Devices, Inc., Mr. Holbrook held
engineering management positions with Fairchild Semiconductor and Computer Micro
Technology Corporation. Mr. Holbrook is also a director of SDL, Inc., a solid
state laser manufacturer.
Fred M. Gibbons, age 48. Mr. Gibbons has been a partner with Concept Stage
Venture Management, an investment firm based in California, since 1994. From
1995 through 1998, Mr. Gibbons was also a lecturer at the Stanford University
Graduate School of Engineering. In 1981, Mr. Gibbons founded Software Publishing
Corporation based in San Jose, California, a company engaged in the development
of software systems for personal computer applications, and was its Chief
Executive Officer through 1994. Prior to 1981, Mr. Gibbons was employed as a
product and marketing manager for Hewlett-Packard Company.
There is no family relationship between any directors or executive officers
of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities and Exchange Act of 1934, as amended,
the Company's directors, executive officers, and any persons holding more than
ten percent of the Company's common stock are required to report to the
Securities and Exchange Commission and the Nasdaq National Market their initial
ownership of the Company's stock and any subsequent changes in that ownership.
The Company believes that during fiscal year 1998, its officers, directors and
holders of more than 10 percent of the Company's common stock did not file all
Section 16 (a) reports on a timely basis. Form 3 was not filed timely by any
such persons.
Item 11. Executive Compensation
Director Compensation
Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates will be paid an annual board membership fee.
Directors are reimbursed for reasonable expenses incurred in attending Board or
committee meetings.
The Board of Directors and the Company's Stockholder approved the
Director's Stock Option Plan (the "Director Plan") in July 1998. The plan
authorizes 600,000 shares of Common Stock for issuance plus an annual increase
each July 1st equal to the lesser of (i) 100,000 shares, (ii) the number of
shares subject to option granted in the prior one year period, or (iii) a lesser
amount determined by the Board. Upon a non-employee director's election or
appointment to the Board, he or she will automatically receive a non-statutory
stock option to purchase 40,000 shares of Common Stock. Each director who has
been a non-employee director for at least six months will automatically receive
a non-statutory stock option to purchase 10,000 shares of Common Stock each year
on the date of the annual stockholder meeting. All stock options are granted an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant. Stock options generally vest over a 50-month period from the
date of the grant. Pursuant to the terms of the Director Plan, Messrs. Holbrook
and Gibbons were each granted 40,000 stock options upon commencement of their
term as members of the Company's Board of Directors.
37
<PAGE>
Executive Compensation
The following table sets forth information about the compensation of the
Chief Executive Officer and each of the other two most highly compensated
executive officers of the Company who, based on employment with the Company and
Silicon Graphics were the most highly compensated officers of the Company
(collectively, the "Named Executive Officers"). All of the information set forth
in this table reflects compensation earned by such individuals for services
rendered to the Company and Silicon Graphics and its subsidiaries.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation(1) Awards
----------------------------------- ----------------------------------
Securities
Other Annual Restricted Underlying All Other
Name and Principal Compensation Stock Options/SARs LTIP Compensation
Position Year Salary Bonus (2) Award(s) (3) Payouts (4)
------------------ ---- -------- -------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Bourgoin 1998 $372,053 $ -- $ 21,343 $-- -- $-- $ 2,226
Chief Executive Officer 1997 $280,000 $ 89,086 $ 9,382 $-- 125,000 $-- $ 1,200
and President
Lavi Lev 1998 $245,542 $ -- $309,228 $-- -- $-- $ 1,880
Senior Vice 1997 $215,192 $106,550 $ 83,024 $-- 64,000 $-- $ 2,400
President, Engineering
Derek Meyer 1998 $201,456 $ -- $ 32,210 $-- 4,500 $-- $ 1,793
Vice President, 1997 $182,215 $ 25,987 $ 36,543 $-- 12,000 $-- $ 2,079
Sales and Marketing
</TABLE>
- ----------
(1) Silicon Graphics has no pension, retirement, annuity or similar benefit
plan.
(2) In fiscal 1998, "Other Annual Compensation" for the following executives
is: Mr. Bourgoin includes (i) $11,348 club membership fees, (ii) $5,538 car
allowance and (iii) various executive perquisites none of which exceed 25%
of the amount reported as other annual compensation; Mr. Lev includes (i)
$150,000 of gross-up award related to a forgivable loan, (ii) $100,000 of
income reflecting monthly amortization of a forgivable loan from Silicon
Graphics, (iii) $50,538 in relocation expenses and housing allowances and
(iv) various executive perquisites none of which exceed 25% of the amount
reported as other annual compensation and Mr. Meyer includes (i) $32,210 on
the sale of 2,500 shares of restricted stock. In fiscal 1997, "Other Annual
Compensation" for the following executives is: Mr. Bourgoin includes
various executive perquisites none of which exceed 25% of the amount
reported as other annual compensation; Mr. Lev includes (i) $42,000 of
income reflecting monthly amortization of a forgivable loan from Silicon
Graphics, (ii) $34,320 in relocation expenses and housing allowances and
(iii) various executive perquisites none of which exceed 25% of the amount
reported as other annual compensation and Mr. Meyer includes (i) $36,248 on
the sale of 2,500 shares of restricted stock and (ii) various executive
perquisites none of which exceed 25% of the amount reported as other annual
compensation.
(3) In fiscal 1997, Silicon Graphics effected an option exchange program to
allow employees to exchange their out-of-the-money stock options for a
smaller number of new options at a more favorable exercise price. The
numbers in this column include 44,000 options issued to Mr. Lev in the
exchange program for 55,000 options that were granted in fiscal 1997 and
12,000 options issued to Mr. Meyer in the exchange program for 15,000
options that were granted prior to fiscal 1997.
(4) All other compensation includes Silicon Graphics' contribution to savings
plans.
Grants Under the 1998 Long-Term Incentive Plan
In connection with the Offering, the Company has made initial grants of
stock options to the executive officers and certain other employees and
consultants of the Company under the 1998 Long-Term Incentive Plan. An aggregate
of 2,996,900 shares of common stock are issuable upon the exercise of the
options granted at an exercise price of $12.00 per share. In addition, the
Company granted stock awards totalling 15,000 shares of Common Stock. The
following table sets forth the number of shares of common stock underlying
options and the number of shares subject to stock awards that were granted under
the 1998 Long-Term Incentive Plan to (i) each of the executive
38
<PAGE>
officers of the Company, (ii) the executive officers of the Company as a group
and (iii) all employees and consultants of the Company as a group other than the
executive officers of the Company.
Grants Under 1998 Long-Term Incentive Plan
<TABLE>
<CAPTION>
Number of Shares Stock
Name and Position Underlying Options Awards
----------------- ----------------- ------
<S> <C> <C>
John E. Bourgoin ....................................................... 559,500 15,000
Chief Executive Officer and President
Lavi Lev ............................................................... 298,400 --
Senior Vice President, Engineering
Kevin C. Eichler ....................................................... 223,800 --
Vice President and Chief Financial Officer
Derek Meyer ............................................................ 205,200 --
Vice President, Sales and Marketing
Sandy Creighton ........................................................ 223,800 --
Vice President, General Counsel and Secretary
Executive Officers as a Group .......................................... 1,510,700 15,000
Non-Executive Officer Employee and Consultants Group ................... 1,486,200 --
</TABLE>
The following table sets forth information regarding the Company's stock
options granted to the Named Executive Officers during fiscal year 1998.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------
Number of % of Total
Securities Options Potential Realizable Value
Underlying Granted to Exercise at Assumed Annual Rates of
Options Employees Price Expiration Stock Price Appreciation
Name Granted in Fiscal Year per Share Date for Option Term(1)
---- ---------- -------------- --------- ---------- -----------------------
5% 10%
---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin ........ 559,500 18.67% $12.00 05/22/08 $4,222,399 $10,700,387
Lavi Lev................. 298,400 9.96% $12.00 05/22/08 $2,251,946 $ 5,706,873
Kevin C. Eichler......... 223,800 7.47% $12.00 05/22/08 $1,688,959 $ 4,280,155
Derek Meyer ............. 205,200 6.85% $12.00 05/22/08 $1,548,590 $ 3,924,431
Sandy Creighton.......... 223,800 7.47% $12.00 06/04/08 $1,688,959 $ 4,280,155
</TABLE>
- ----------
(1) Potential realizable value assumes that the price of the Company's common
stock increases from the date of grant until the end of the option term (10
years) at the annual rate specified (5% and 10%). The 5% and 10% assumed
annual rates of appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent an estimate or projection of the
future price of the Company's common stock. The Company does not believe
that this method accurately illustrates the potential value of a stock
option.
39
<PAGE>
The following table sets forth information regarding stock options granted
to the Named Executive Officers during fiscal year 1998 in respect of shares of
Silicon Graphics common stock under the Silicon Graphics' stock plan.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Number of % of Total
Securities Options Potential Realizable Value
Underlying Granted to Exercise at Assumed Annual Rates of
Options Employees Price Expiration Stock Price Appreciation
Name Granted in Fiscal Year per Share Date for Option Term(1)
---- --------- -------------- --------- ---------- ------------------------
5% 10%
--------- ----------
<S> <C> <C> <C> <C> <C> <C>
Derek Meyer.............. 4,500 * $12.875 11/13/07 $ 36,437 $ 92,337
</TABLE>
- ----------
* Less than 1%.
(1) Potential realizable value assumes that the price of Silicon Graphics'
common stock increases from the date of grant until the end of the option
term (10 years) at the annual rate specified (5% and 10%). The 5% and 10%
assumed annual rates of appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent an estimate or
projection of the future price of Silicon Graphics' common stock. The
Company does not believe that this method accurately illustrates the
potential value of a stock option.
The following table sets forth information regarding options to purchase
the Company's common stock by the Named Executive Officers during fiscal 1998,
and the number and value of unexercised, in-the-money options at June 30, 1998.
Stock Option Exercises and
June 30, 1998 Fiscal Year-End Values
<TABLE>
<CAPTION>
Shares
Acquired Value of Unexercised
on Value Number of Unexercised In-the-Money Options at
Name Exercise Realized Options at June 30, 1998 June 30, 1998 (1)
------ ------- ------ ------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin ............. -- -- -- 559,500 -- $804,002
Lavi Lev ..................... -- -- -- 298,400 -- $428,801
Kevin C. Eichler ............. -- -- -- 223,800 -- $321,601
Derek Meyer .................. -- -- -- 205,200 -- $294,872
Sandy Creighton .............. -- -- -- 223,800 -- $321,601
</TABLE>
- ----------
(1) The amounts in this column reflect the difference between the closing
market price of the Company's common stock on June 30, 1998, which was
$13.437, and the option exercise price. The actual value of unexercised
options fluctuates with the market price of the Company's common stock.
The following table sets forth information regarding options to purchase
Silicon Graphics common stock by the Named Executive Officers during fiscal
1998, and the number and value of unexercised, in-the-money options at June 30,
1998.
Stock Option Exercises and
June 30, 1998 Fiscal Year-End Values
<TABLE>
<CAPTION>
Shares
Acquired Value of Unexercised
on Value Number of Unexercised In-the-Money Options at
Name Exercise Realized Options at June 30, 1998 June 30, 1998 (1)
------ ------- ------ -------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin ............. -- -- 50,000 -- -- --
Lavi Lev ..................... -- -- 21,734 -- $ 3,828 --
Derek Meyer .................. -- -- 4,548 -- -- --
</TABLE>
- ----------
(1) The amounts in this column reflect the difference between the closing
market price of the Silicon Graphics' common stock on June 30, 1998, which
was $12.125, and the option exercise price. The actual value of unexercised
options fluctuates with the market price of Silicon Graphics' common stock.
Change in Control Arrangements
Unvested stock options held be the Named Executive Officers at the time of
a change in control of the Company will become immediately vested and
exercisable.
40
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management Stock
Ownership of Directors and Executive Officers
The Company is not aware of any person who, on September 1, 1998, was the
beneficial owner of 5% or more of the Company's outstanding common stock, except
for Silicon Graphics, Inc. The following table sets forth such ownership as of
September 1, 1998. The table also shows the number of shares of the Company
common stock beneficially owned on September 1, 1998 by each of the Company's
directors, the Named Executive Officers and all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percent of
Name Owned Class
----- ------------ ----------
<S> <C> <C>
Silicon Graphics, Inc.
2011 North Shoreline Boulevard
Mountain View, CA 94043.............................. 31,750,000 85.2%
John E. Bourgoin .................................... 16,000** *
Lavi Lev ............................................ 1,000 *
Kevin C. Eichler..................................... 1,000 *
Derek Meyer ......................................... 1,300 *
Sandy Creighton...................................... 1,000 *
Dr. Forest Baskett .................................. -- *
Kenneth L. Coleman .................................. 1,285 *
Fred M. Gibbons...................................... -- *
Anthony B. Holbrook.................................. -- *
William M. Kelly .................................... -- *
Teruyasu Sekimoto ................................... -- *
Directors and Executive Officers as a Group (11 persons) 21,585 *
</TABLE>
- ----------
* No individual Named Executive Officer or director beneficially owns 1% or
more of the Company's common stock, nor do the Named Executive Officers and
directors as a group.
** Under the 1998 Long-Term Incentive Plan, the Company granted stock awards
totalling 15,000 shares of Common Stock effective upon the completion of
the initial public offering.
(1) The persons named have sole voting and investment power over the shares
shown as being beneficially owned by them, subject to community property
laws, where applicable, except for 1,000 shares held indirectly by Mr. Lev.
Mr. Lev disclaims beneficial ownership of these shares and they are held in
trust for his children. There were no options or other convertible
securities that were exercisable on September 1, 1998 or within 60 days
thereafter.
Silicon Graphics owns approximately 85.2% of the outstanding Common Stock
of the Company. For so long as Silicon Graphics continues to beneficially own in
excess of 50% of the shares of Common Stock outstanding, Silicon Graphics will
be able to direct the election of all directors of the Company and exercise a
controlling influence over the business and affairs of the Company, including
any determinations with respect to mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the Company,
future issuances of Common Stock or other equity securities of the Company, the
incurrence of indebtedness by the Company and the payment of dividends with
respect to the Common Stock. Similarly, Silicon Graphics will have the power to
determine matters submitted to a vote of the Company's stockholders without the
consent of the Company's other stockholders, will have the power to prevent or
cause a change in control of the Company and could take other actions that might
be favorable to Silicon Graphics.
Conflicts of interest may arise between the Company and Silicon Graphics in
a number of areas relating to their past and ongoing relationships, including
potential competitive business activities, indemnity arrangements, tax and
intellectual property matters, registration rights, potential acquisitions or
financing transactions, sales or other dispositions by Silicon Graphics of
shares of Common Stock and the exercise by Silicon Graphics of its ability to
control the management and affairs of the Company. Although Silicon Graphics
does not currently intend to engage in the design and development of
microprocessor intellectual property for embedded systems applications, the
Company's Restated Certificate of Incorporation provides that Silicon Graphics
shall have no duty to refrain from engaging in the same or similar activities or
lines of business as the Company.
41
<PAGE>
Ownership interests of directors or officers of the Company in the common
stock of Silicon Graphics or service as both a director of the Company and an
officer or employee of Silicon Graphics could create or appear to create
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for the Company and Silicon
Graphics. Four of the Company's seven current directors are officers or
employees of Silicon Graphics. The Restated Certificate of Incorporation
includes certain provisions relating to the allocation of business opportunities
that may be suitable for both the Company and Silicon Graphics based on the
relationship to the Company and Silicon Graphics of the individual to whom the
opportunity is presented and the method by which its was presented.
Item 13. Certain Relationships and Related Transactions.
In connection with the Separation and the Offering, the Company and Silicon
Graphics entered into various agreements intended to define the relationship
between them following the Offering. Because these agreements were entered into
at a time when the Company was still a wholly owned subsidiary of Silicon
Graphics, they are not the result of arm's-length negotiations between the
parties. Among these agreements is a Management Services Agreement, under which
Silicon Graphics will provide various, primarily administrative, services to the
Company, including accounting, treasury, tax, facilities and information
services. The Management Services Agreement will have a three-year term and will
be subject to automatic termination at such time as Silicon Graphics ceases to
own more than 50% of the outstanding Common Stock. In addition, either Silicon
Graphics or the Company may terminate the Management Services Agreement with
respect to one or more of the services provided thereunder upon giving at least
30 days prior written notice to the other party.
The Company subleases from Silicon Graphics approximately 27,500 square
feet (with an option to increase to 55,000 square feet) in one building in
Mountain View, California. Payments by the Company to Silicon Graphics under
this sublease are approximately $51,000 per month, increasing to approximately
$67,000 per month by August 2001. The amounts payable by the Company under this
sublease are equal to the amounts payable by Silicon Graphics under its sublease
for the property with a third party. This sublease will expire on May 31, 2002,
subject to earlier termination in certain circumstances.
By virtue of its beneficial ownership of over 80% of the total voting power
and value of the outstanding Common Stock, Silicon Graphics will include the
Company in its consolidated group for federal income tax purposes. The Company
and Silicon Graphics entered into a Tax Sharing Agreement pursuant to which the
Company and Silicon Graphics will make payments between them such that, with
respect to any period, the amount of taxes to be paid or received by the
Company, subject to certain adjustments, will be determined as though the
Company were to file separate federal, state and local income tax returns.
However, each member of a consolidated group for federal income tax purposes is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. Each member of the Silicon Graphics controlled
group, which includes Silicon Graphics, the Company and Silicon Graphics' other
subsidiaries, is also jointly and severally liable for pension and benefit
funding and termination liabilities of other group members, as well as certain
benefit plan taxes. Accordingly, the Company could be liable under such
provisions if any such liability is incurred, and not discharged, by any other
member of the Silicon Graphics consolidated or controlled group.
In addition, by virtue of its beneficial ownership of over 80% of the total
voting power and value of the outstanding Common Stock and the terms of the Tax
Sharing Agreement entered into between the Company and Silicon Graphics, Silicon
Graphics will effectively control all of the Company's tax decisions. Under the
Tax Sharing Agreement, Silicon Graphics will have the sole authority to respond
to and conduct all tax proceedings (including tax audits) relating to the
Company, to file all returns on behalf of the Company and to determine the
amount of the Company's liability to (or entitlement to payment from) Silicon
Graphics under the Tax Sharing Agreement.
Subject to applicable federal securities laws and the restrictions set
forth below, Silicon Graphics may sell any and all of the shares of Common Stock
beneficially owned by it or distribute any or all of such shares of Common Stock
to its stockholders. Sales or distribution by Silicon Graphics of substantial
amounts of Common Stock in the public market or to its stockholders, or the
perception that such sales or distribution could occur, could adversely affect
the prevailing market prices for the Common Stock. Silicon Graphics has advised
the Company that its current intent is to continue to hold all of the Common
Stock beneficially owned. However, Silicon Graphics is not subject to any
obligation to retain its controlling interest in the Company, except that
Silicon Graphics has agreed not to sell or otherwise dispose of any shares of
Common Stock until June 29, 1999 without the prior written
42
<PAGE>
consent of Deutsche Bank Securities Inc. As a result, there can be no assurance
concerning the period of time during which Silicon Graphics will maintain its
beneficial ownership of Common Stock owned by it following the Offering.
Moreover, there can be no assurance that, in any transfer by Silicon Graphics of
a controlling interest in the Company, any holders of Common Stock will be able
to participate in such transaction or will realize any premium with respect to
their shares of Common Stock. Silicon Graphics will have registration rights
with respect to the shares of the Common Stock owned by it following the
Offering, which would facilitate any future disposition.
The Company has three outstanding loans to Mr. Lev. The first loan is a
forgivable, non-interest bearing note with a principal amount outstanding at
June 30, 1998 of approximately $258,000. The principal of this loan is forgiven
(reduced) ratably on a periodic basis through December 2000, subject to Mr.
Lev's continued employment. The second loan is a forgivable, non-interest
bearing (except in certain limited circumstances) note with a principal amount
outstanding at June 30, 1998 of $250,000. The principal of this loan is
forgivable on March 1, 2002, subject to Mr. Lev's continued employment at all
times prior to such date. The third loan bears interest at an annual rate of
7.19% and had a principal amount outstanding at June 30, 1998 of $275,000. The
largest aggregate amount of these loans outstanding during the period since July
1, 1996 was approximately $900,000.
43
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K
(a) The Following documents are filed as a part of this Report:
1. Financial Statements. The following financial statements and
supplementary information of the Company and Report of Independent
Auditors are included in Part II of this Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................................ 21
Balance Sheets-- Years Ended June 30, 1998 and 1997...................................... 22
Statements of Operations -Years Ended June 30, 1998, 1997 and 1996....................... 23
Statement of Stockholders' Equity (Deficit) --
Years Ended June 30, 1998, 1997 and 1996 .............................................. 24
Statements of Cash Flows-- Years Ended June 30, 1998, 1997 and 1996....................... 25
Notes to Financial Statements............................................................. 26
</TABLE>
2. Schedules not listed above have been omitted because the required
information is not present or not present in amounts sufficient to
require submission of the schedule or because the information required
is included in the consolidated financial statements or notes thereto.
3. Exhibits. The following Exhibits are filed as part of, or incorporated
by reference into, this Report:
Exhibit No. List of Exhibits
----------- ----------------
3.1 Certificate of Incorporation is incorporated herein by reference
to Exhibit 3.1 to the Company's Registration Statement on Form
S-1, Registration No, 333-50643 filed with the Securities and
Exchange Commission (the "Commission") which registration
statement became effective on June 29, 1998.
3.2 The Company's By-Laws, as amended.
10.1 The Separation Agreement between the Company and Silicon
Graphics, Inc. is incorporated herein by reference to Exhibit
10.1 of Amendment No. 2 to the Company's Registration Statement
on Form S-1, Registration No. 333-50643 filed with the
Commission, which registration statement became effective on June
29, 1998.
10.2 The Corporate Agreement between the Company and Silicon Graphics,
Inc. is incorporated herein by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1, Registration No.
333-50643 filed with the Commission, which registration statement
became effective on June 29, 1998.
10.3 The Management Services Agreement between the Company and Silicon
Graphics, Inc. is incorporated herein by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1,
Registration No. 333-50643 filed with the Commission, which
registration statement became effective on June 29, 1998.
10.4 The Tax Sharing Agreement between the Company and Silicon
Graphics, Inc. is incorporated herein by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-1,
Registration No. 333-50643 filed with the Commission, which
registration statement became effective on June 29, 1998.
10.5 The Technology Agreement between the Company and Silicon
Graphics, Inc. is incorporated herein by reference to Exhibit
10.5 of Amendment No. 5 to the Company's Registration Statement
on Form S-1, Registration No. 333-50643 filed with the
Commission, which registration statement became effective on June
29, 1998.
10.6 The Trademark Agreement between the Company and Silicon Graphics,
Inc. is incorporated herein by reference to Exhibit 10.6 of
Amendment No. 5 to the Company's Registration Statement on Form
S-l, Registration No. 333-50643 filed with the Commission, which
registration statement became effective on June 29, 1998.
10.7.1 The Joint Development and License Agreement between Nintendo Co.,
Ltd. and Nintendo of America Inc. on the one hand and Silicon
Graphics, Inc. and MIPS Technologies, Inc. on the other hand is
incorporated herein by reference to Exhibit 10.7.1 of Amendment
No. 4 to the Company's Registration Statement on Form S-1,
Registration No. 333-50643 filed with the Commission, which
registration statement became effective on June 29, 1998.*
44
<PAGE>
Exhibit No. List of Exhibits
----------- ----------------
10.7.2 The First Addendum to the Joint Development and License Agreement
is incorporated herein by reference to Exhibit 10.7.2 of
Amendment No. 4 to the Company's Registration Statement on Form
S-1, Registration No. 333-50643 filed with the Commission, which
registration statement became effective on June 29, 1998.*
10.7.3 The Second Addendum to the Joint Development and License
Agreement is incorporated herein by reference to Exhibit 10.7.3
of Amendment No. 5 to the Company's Registration Statement on
Form S-1, Registration No. 333-50643 filed with the Commission,
which registration statement became effective on June 29, 1998.*
10.7.4 The Fourth Addendum to the Joint Development and License
Agreement is incorporated herein by reference to Exhibit 10.7.4
of Amendment No. 5 to the Company's Registration Statement on
Form S-1, Registration No. 333-50643 filed with the Commission,
which registration statement became effective on June 29, 1998.
10.8 The 1998 Long-Term Incentive Plan, as amended.
10.9 The Employee Stock Purchase Plan, as amended.
10.10 Director's Stock Option Plan.
10.11 Non-U.S. Stock Purchase Plan.
27.1 Financial Data Schedule.
- ----------
* The Company has received confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted from the public
filing.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MIPS Technologies, Inc.
By: /s/ JOHN E. BOURGOIN
-------------------------------------
John E. Bourgoin
Chief Executive Officer
Date: September 22, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JOHN E. BOURGOIN Chief Executive Officer September 22, 1998
- -------------------------- and Director (Principal
John E. Bourgoin Executive Officer)
/s/ KEVIN C. EICHLER (Principal Financial and September 23, 1998
- -------------------------- Accounting Officer)
Kevin C. Eichler
/s/ WILLIAM M. KELLY Director September 23, 1998
- --------------------------
William M. Kelly
/s/ KENNETH L. COLEMAN Director September 22, 1998
- --------------------------
Kenneth L. Coleman
/s/ TERUYASU SEKIMOTO Director September 22, 1998
- --------------------------
Teruyasu Sekimoto
/s/ FOREST BASKETT Director September 22, 1998
- --------------------------
Forest Baskett
/s/ ANTHONY B. HOLBROOK Director September 22, 1998
- --------------------------
Anthony B. Holbrook
/s/ FRED M. GIBBONS Director September 21, 1998
- --------------------------
Fred M. Gibbons
46
BY-LAWS
OF
MIPS TECHNOLOGIES, INC.
ARTICLE I
Offices
The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The Corporation may also
have one or more offices at such other places, either inside or outside of the
State of Delaware, as the Board of Directors may from time to time determine or
as the business of the Corporation may require. The books and records of the
Corporation may be kept (subject to the provisions of the laws of the State of
Delaware) at any place, either inside or outside of the State of Delaware, as
from time to time may be determined by the Board of Directors.
ARTICLE II
Stockholders
Section 1. Place of Meetings. Meetings of stockholders (whether annual or
special) shall be held at such place, either inside or outside of the State of
Delaware, as the Board of Directors shall from time to time determine.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on such date and at such time as may be fixed by
resolution of the Board of Directors.
Section 3. Special Meetings. Unless otherwise prescribed by law or by the
Corporation's Restated Certificate of Incorporation, as amended from time to
time (the "Charter"), and subject to any preferential rights of any outstanding
series of Preferred Stock (as defined in the Charter), special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
by the Chairman of the Board of Directors, the President, or, at the request in
writing of a majority of the Board of Directors, any officer. Such request shall
state the purpose or purposes of the proposed meeting. In addition, prior to the
Trigger Date (as defined in the Charter), the Corporation shall call a special
meeting of stockholders of the Corporation promptly upon request by Silicon
Graphics, Inc., a Delaware corporation, or any of its affiliates, in each case
if such entity is a stockholder of the Corporation.
Section 4. Notice of Meetings. Except as otherwise provided by law, written
or printed notice, stating the place, day and hour of the meeting and the
purpose or purposes for which the meeting is called shall be delivered by the
Corporation not less than ten (10) calendar days nor more than sixty (60)
calendar days before the date of the meeting, either personally or by mail, to
each stockholder of record entitled to vote at such meeting. Meetings may be
held without notice
<PAGE>
2
if all stockholders entitled to vote are present, or if notice is waived by
those not present in accordance with Section 2 of Article X of these By-laws.
Any previously scheduled meeting of the stockholders may be postponed, and any
special meeting of the stockholders may be canceled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
Section 5. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made
at an annual meeting of stockholders (A) pursuant to the Corporation's
notice of meeting delivered pursuant to Section 4 of this Article II, (B)
by or at the direction of the Board of Directors, (C) by any stockholder of
the Corporation who was a stockholder of record at the time of the giving
of the notice provided for in this Section 5, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Section 5, or (D) prior to the Trigger Date, by Silicon Graphics, Inc., a
Delaware corporation, or any of its affiliates that is a stockholder of the
Corporation.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Section 5, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other
business must be a proper subject for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date
of the annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the sixtieth day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of
such meeting is first made by the Corporation. For purposes of determining
whether a stockholder's notice shall have been delivered in a timely manner
for the annual meeting of stockholders in 1999, the first anniversary of
the previous year's meeting shall be deemed to be October 29, 1999. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (A) as to each
person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to
be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy
<PAGE>
3
statement as a nominee and to serving as a director if elected); (B) as to
any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (1) the name and address
of such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (2) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 5 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors made by
the Corporation at least seventy (70) days prior to the first anniversary
of the preceding year's annual meeting, a stockholders's notice required by
this Section 5 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth day following
the day on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting pursuant to Section 4 of
this Article II. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the Corporation's notice of meeting (i) by or at the
direction of the Board of Directors, (ii) by any stockholder of the Corporation
who was a stockholder of record at the time of the giving of the notice provided
for in this Section 5, who is entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 5, or (iii) prior to the
Trigger Date, by Silicon Graphics, Inc., a Delaware corporation, or any of its
affiliates that is a stockholder of the Corporation. In the event that the
Corporation calls a special meeting of stockholders for the purpose of electing
one or more directors to the Board of Directors, any stockholder may nominate
such person or persons (as the case may be), for election to the Board of
Directors, if the stockholder's notice required by paragraph (a)(ii) of this
Section 5 shall be delivered to the Secretary of the Corporation at the
principal executive offices of the Corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the sixtieth day prior to such special meeting or the tenth day
following the day on which public announcement by the Corporation is first made
of the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(c) General.
<PAGE>
4
(i) Only persons who are nominated in accordance with the procedures
set forth in this Section 5 shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Section 5. Except as otherwise provided by law, the Charter
or these By-laws, the chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with this Section 5 and, if any
proposed nomination or business is not in compliance with this Section 5,
to declare that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 5, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 5. Nothing in this Section 5 shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act or (B) of the holders of any series or Preferred Stock to
elect directors.
Section 6. Quorum. Except as otherwise provided by law or in the Charter,
the holders of a majority of the voting power of all outstanding shares of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders, except that when specified business is to be voted on
by a class or series of stock voting as a class, the holders of a majority of
the shares of such class or series shall constitute a quorum of such class or
series for the transaction of such business. At any meeting of stockholders at
which a quorum is not present, the person serving as chairman of the meeting or
the holders of a majority in interest of the stockholders present in person or
by proxy and who are entitled to vote on every matter that is to be voted on
without regard to class at such meeting may adjourn the meeting from time to
time. No notice of the time and place of adjourned meetings need by given except
as required by law.
Section 7. Organization and Conduct of Business. The Chairman of the Board
of Directors shall act as chairman of meetings of the stockholders. The Board of
Directors may designate any other officer or director of the Corporation to act
as chairman of any meeting in the absence of the Chairman of the Board of
Directors, and the Board of Directors may further provide for determining who
shall act as chairman of any stockholder's meeting in the absence of the
Chairman of the Board of Directors and such designee. The person serving as
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to him or her in order.
<PAGE>
5
The Secretary of the Corporation shall act as secretary of all meetings of
the stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
Section 8. Proxies and Voting. At any meeting of stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware) by the stockholder, or by such
person's duly authorized attorney in fact.
Election of directors at all meeting of the stockholders at which directors
are to be elected shall be by ballot, and, subject to the rights of the holders
of any series of Preferred Stock to elect directors, a plurality of the votes
cast thereat shall elect directors. Except as otherwise provided by law, the
Charter and these By-laws and subject to the rights of the holders of any series
of Preferred Stock, in all matters other than the election of directors, the
affirmative vote of a majority of the voting power of the shares present in
person or represented by proxy at the meeting and entitled to vote on the matter
shall be the act of the stockholders.
Section 9. Inspectors of Election. The Board of Directors may, and to the
extent required by law, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting, decide upon the
qualification of voters, count the votes, decide the results and make a written
report thereof in accordance with the General Corporation Law of the State of
Delaware. The Board of Directors may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector(s)
shall have the duties prescribed by law.
Section 10. No Stockholder Action by Written Consent. Effective as of the
Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of such holders and may not be effected by any consent in writing by such
holders.
ARTICLE III
Board of Directors
Section 1. Number and Term of Office. Subject to the rights, if any, of
holders of preferred stock of the Corporation, the number of directors of the
Corporation shall be fixed from time to time exclusively by resolution of the
Board of Directors adopted by the affirmative vote of directors constituting not
less than a majority of the Whole Board, but shall consist of not more than ten
(10) nor less than three (3) directors. The directors, other than those who may
be elected by the holders of any class or series of preferred stock of the
Corporation, shall be classified, with respect to the time they severally hold
office, into three classes, as nearly equal in
<PAGE>
6
number as possible, one class to be initially elected for a term expiring at the
annual meeting of stockholders to be held in 1999, another class to be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2001, and another class to be initially elected for a term expiring at the
annual meeting of stockholders to be held in 2001, with each director to serve
until his or her successor shall have been elected and shall have qualified. At
each succeeding annual meeting of stockholders, directors elected to succeed
those directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to serve until his or her successor shall have been
elected and shall have qualified.
For purposes of these By-laws, the term "Whole Board" shall mean the total
number of directors that the Corporation would have if there were no vacancies
on the Corporation's Board of Directors.
Section 2. Meetings. Regular meetings of the Board of Directors may be held
at such place, either inside or outside of the State of Delaware, and at such
time, as may from time to time be designated by the Chairman of the Board of
Directors or resolution of the Board of Directors or as may be specified in the
call of any meeting. An annual meeting of the Board of Directors shall be held
on the same day as, and as soon as practicable following, the annual meeting of
stockholders or at such other time or place as shall be determined by the Board
of Directors at its regular meeting next preceding said annual meeting of
stockholders.
Special meetings of the Board of Directors may be held at any time on the
call of the Chairman of the Board of Directors, the President or a majority of
the Board of Directors then in office. The person or persons authorized to call
special meetings of the Board of Directors may fix the time and place of the
meetings. Meetings may be held at any time or place without notice if all the
directors are present or if those not present waive notice of the meeting in
writing.
Section 3. Notice of Meetings. Notice of the time and place of meetings of
the Board of Directors (excepting the annual meeting of directors) shall be
given to each director by the Secretary or an Assistant Secretary of the
Corporation by (i) mailing or sending via courier such notice not later than
during the second day preceding the day on which such meeting is to be held, or
(ii) by (a) sending a facsimile transmission or other form of electronic
communication containing such notice or (b) delivering such notice personally or
by telephone, in each case, not later than during the first day preceding the
day on which such meeting is to be held. Unless otherwise stated in the notice
thereof, any and all business may be transacted at any meeting.
Section 4. Quorum and Organization of Meetings. Subject to Section 5 of
this Article III, a whole number of directors equal to at least a majority of
the Whole Board shall constitute a quorum for the transaction of business, but
if at any meeting of the Board of Directors there shall be less than a quorum
present, a majority of the directors present may adjourn the meeting from time
to time without further notice. The act of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors. The directors present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the
<PAGE>
7
withdrawal of enough directors to leave less than a quorum.
Meetings shall be presided over by the Chairman of the Board of Directors
or, in his or her absence, by such other person as the Board of Directors may
designate or the members present may select.
Section 5. Vacancies. Subject to the rights, if any, of holders of
preferred stock of the Corporation, and unless the Board of Directors otherwise
determines, any vacancy occurring in the Board of Directors caused by death,
resignation, increase in number of directors or otherwise may be filled by the
affirmative vote of a majority of the remaining members of the Board of
Directors, though less than a quorum, or by a sole remaining director, and
except as otherwise provided by law, any such vacancy may not be filled by the
stockholders of the Company. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 6. Powers. In addition to the powers and authorities by these
By-laws expressly conferred upon them, the Board of Directors shall have and may
exercise all such powers of the Company and do all such lawful acts and things
that are not by statute, the Charter or these By-laws directed or required to be
exercised or done by the stockholders.
Section 7. Reliance upon Books, Reports and Records. Each director, each
member of any committee designated by the Board of Directors and each officer,
in the performance of his or her duties, shall be fully protected in relying in
good faith upon such information, opinions, reports or statements presented to
the Corporation by any of its officers or employees, or by committees of the
Board of Directors, or by any other person, as to matters such director, member
or officer, as the case may be, reasonably believes are within such person's
professional or expert competence and who has been selected with reasonable care
by the Board of Directors or by any such committee, or in relying in good faith
upon other records of the Corporation.
Section 8. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
services as members of committees of the Board of Directors; provided, however,
that nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 9. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Charter or these By-laws, members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors or such committee by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
this Section 8 shall constitute presence in person at such meeting.
<PAGE>
8
Section 10. Actions by Written Consent. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
ARTICLE IV
Committees of the Board of Directors
Section 1. Committees of the Board of Directors. There are hereby
established as committees of the Board of Directors: an Audit Committee and a
Compensation Committee, each of which shall have the powers and functions set
forth in Sections 2 and 3 hereof, respectively, and such additional powers as
may be delegated to it by the Board of Directors. The Board of Directors may
from time to time establish additional standing committees or special committees
of the Board of Directors, each of which shall have such powers and functions as
may be delegated to it by the Board of Directors. The Board of Directors may
abolish any committee established by or pursuant to this Section 1 as it may
deem advisable. Each such committee shall consist of two or more directors, the
exact number being determined from time to time by the Board of Directors.
Designations of the chairman and members of each such committee, and, if
desired, a vice chairman and alternates for members, shall be made by the Board
of Directors. In the absence or disqualification of any member of any committee
and any alternate member in his or her place, the member or members of the
committee present at the meeting and not disqualified from voting whether or not
he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member. Each committee shall have a secretary who shall
be designated by its chairman. A vice chairman of a committee shall act as the
chairman of the committee in the absence or disability of the chairman. Nothing
herein shall be deemed to prevent the Board of Directors from appointing one or
more committees consisting in whole or in part of persons who are not directors
of the Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board of Directors.
Section 2. Audit Committee. The Audit Committee shall select and engage, on
behalf of the Corporation, independent public accountants to (a) audit the books
of account and other corporate records of the Corporation and (b) perform such
other duties as the Audit Committee may from time to time prescribe. The Audit
Committee shall transmit financial statements certified by such independent
public accountants to the Board of Directors after the close of each fiscal
year. The selection of independent public accountants for each fiscal year shall
be made in advance of the annual meeting of stockholders in such fiscal year and
shall be submitted for ratification or rejection at such meeting. The Audit
Committee shall confer with such accountants and review and approve the scope of
the audit of the books of account and other corporate records of the Company.
The Audit Committee shall have the power to confer with and direct the officers
of the Corporation to the extent necessary to review the internal controls,
accounting practices, financial structure and financial reporting of the
Corporation. From time to
<PAGE>
9
time the Audit Committee shall report to and advise the Board of Directors
concerning the results of its consultation and review and such other matters
relating to the internal controls, accounting practices, financial structure and
financial reporting of the Corporation as the Audit Committee believes merit
review by the Board of Directors. The Audit Committee also shall perform such
other functions and exercise such other powers as may be delegated to it from
time to time by the Board of Directors.
Section 3. Compensation Committee. The Compensation Committee shall fix
from time to time the salaries of members of the Board of Directors who are
officers or employees of the Corporation and of all Senior Executive Vice
Presidents, Executive Vice Presidents and Senior Vice Presidents of the
Corporation. It also shall perform such functions as may be delegated to it
under the provisions of any bonus, supplemental compensation, special
compensation or stock option plan of the Corporation.
Section 4. Rules and Procedures. Each committee may fix its own rules and
procedures and shall meet at such times and places as may be provided by such
rules, by resolution of the committee or by call of the chairman or vice
chairman of such committee. Notice of meeting of each committee, other than of
regular meetings provided for by its rules or resolutions, shall be given to
committee members. The presence of a majority of its members, but not less than
two, shall constitute a quorum of any committee, and all questions shall be
decided by a majority vote of the members present at the meeting. All action
taken at each committee meeting shall be recorded in minutes of the meeting.
Section 5. Application of Article. Whenever any provision of any other
document relating to any committee of the Corporation named therein shall be in
conflict with any provision of this Article IV, the provisions of this Article
IV shall govern, except that if such other document shall have been approved by
the stockholders or by the Board of Directors, the provisions of such other
document shall govern.
ARTICLE V
Officers
Section 1. Officers. The officers of the Company shall include a Chairman
of the Board of Directors, who shall be chosen from among the directors, a
President, a Chief Financial Officer, one or more Executive Vice Presidents, one
or more Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a
General Counsel and a Secretary, each of whom shall be elected by the Board of
Directors to hold office until his or her successor shall have been chosen and
shall have qualified. The Board of Directors, the Chairman of the Board of
Directors and the Chief Executive Officer may elect or appoint one or more
Controllers, one or more Assistant Vice Presidents, one or more Assistant
Treasurers, one or more Assistant General Counsels and one or more Assistant
Secretaries, and the Board of Directors may elect or appoint such other officers
as it may deem necessary, or desirable, each of whom shall have such authority,
shall perform such duties and shall hold office for such term as may be
prescribed by the Board of Directors from time to time. Any person may hold at
one time more than one office, excepting
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10
that the duties of the President and Secretary shall not be performed by one
person.
Section 2. Chairman of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation. Subject to
the provisions of these By-laws and to the direction of the Board of Directors,
he or she shall have ultimate authority for decisions relating to the general
management and control of the affairs and business of the Corporation and shall
perform all other duties and exercise all other powers commonly incident to the
position of Chief Executive Officer or which are or from time to time may be
delegated to him or her by the Board of Directors, or which are or may at any
time be authorized or required by law. He or she shall preside at all meetings
of the Board of Directors. He or she shall make reports to the Board of
Directors and stockholders, and shall see that all orders and resolutions of the
Board of Directors and any committee thereof are carried into effect. The
Chairman of the Board may also serve as President, if so elected by the Board of
Directors. The Board of Directors may also elect a Vice-Chairman to act in the
place of the Chairman upon his or her absence or inability to act.
Section 3. President. Subject to the provisions of these By-laws and to the
direction of the Board of Directors and of the Chief Executive Officer, the
President shall have such powers and shall perform such duties as from time to
time may be delegated to him or her by the Board of Directors or by the Chief
Executive Officer, or which are or may at any time be authorized or required by
law.
Section 4. Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents. Each of the Executive Vice Presidents, each of the Senior Vice
Presidents and each of the other Vice Presidents shall have such powers and
shall perform such duties as may be delegated to him or her by the Board of
Directors, the Chairman of the Board of Directors, the President or such other
officer or officers to whom he or she is directly responsible.
Section 5. Treasurer and Assistant Treasurer. The Treasurer, subject to the
direction of the Board of Directors, shall have the care and custody of all
funds and securities of the Corporation. When necessary or proper he or she
shall endorse on behalf of the Corporation, for collection, checks, notes and
other obligations, and shall deposit all funds of the Corporation in such banks
or other depositaries as may be designated by the Board of Directors or by such
officers or employees as may be authorized by the Board of Directors so to
designate. He or she shall perform all acts incident to the office of Treasurer,
subject to the control of the Board of Directors and such other officer or
officers to whom he or she is directly responsible. He or she may be required to
give a bond for the faithful discharge of his or her duties, in such sum and
upon such conditions as the Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his or her
absence or inability to act, any Assistant Treasurer may act in his or her
place. In the case of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an Assistant Treasurer to
act temporarily in his or her place, the Assistant Treasurer so to perform the
duties of the Treasurer shall be designated by the Chairman of the Board of
Directors, the
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11
President or an Executive Vice President.
Section 6. Secretary and Assistant Secretary. The Secretary shall keep full
and accurate minutes of the meetings of the stockholders and of the Board of
Directors in the proper record book of the Corporation provided therefor, and,
when required, the minutes of meetings of the committees, and shall be
responsible for the custody of all such minutes. Subject to the direction of the
Board of Directors, the Secretary shall have custody of the stock ledgers and
documents of the Corporation. He or she shall have custody of the corporate seal
of the Corporation and shall affix and attest such seal to any instrument whose
execution under seal shall have been duly authorized. He or she shall give due
notice of meetings and, subject to the direction of the Board of Directors,
shall perform all other duties commonly incident to his or her office or as
properly required of him or her by the Chairman of the Board of Directors and
such other officer or officers to whom he or she is directly responsible and
shall enjoy all other powers commonly incident to his or her office.
At the request and direction of the Secretary or, in the case of his or her
absence or inability to act, any Assistant Secretary may act in his or her
place. In the case of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an Assistant Secretary to
act temporarily in his or her place, the Assistant Secretary or other person so
to perform the duties of the Secretary shall be designated by the Chairman of
the Board of Directors, the President or an Executive Vice President.
Section 7. Assistant Vice Presidents and Other Officers. Each assistant
vice president and other officers shall perform such duties commonly incident to
his or her office or as properly required of him or her by the Chairman of the
Board of Directors and such other officer or officers to whom he or she is
directly responsible.
Section 8. General Counsel. The General Counsel shall have general
supervision of all matters of a legal nature concerning the Corporation. He or
she shall perform all such duties commonly incident to his or her office or as
properly required of him or her by the Chairman of the Board of Directors and
such other officer or officers to whom he or she is directly responsible.
Section 9. Salaries. Salaries of officers, agents or employees shall be
fixed from time to time by the Board of Directors or by such committee or
committees, or person or persons, if any, to whom such power shall have been
delegated by the Board of Directors. An employment contract, whether with an
officer, agent or employee, if expressly approved or specifically authorized by
the Board of Directors, may fix a term of employment thereunder; and such
contract, if so approved or authorized, shall be valid and binding upon the
Corporation in accordance with the terms thereof, provided that this provision
shall not limit or restrict in any way the right of the Corporation at any time
to remove from office, discharge or terminate the employment of any such
officer, agent or employee prior to the expiration of the term of employment
under any such contract.
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12
Section 10. Vacancies. A vacancy in any office filled by election of the
Board of Directors may be filled by the Board of Directors by the election of a
new officer who shall hold office, subject to the provisions of this Article V,
until the regular meeting of the directors following the next annual meeting of
the stockholders and until his or her successor is elected.
Section 11. Removal or Discharge. Any officer may be removed or discharged
by the Chairman of the Board of Directors at any time excepting an officer who
is also a director. Any officer who also is a director may be discharged at any
time by the Board of Directors.
<PAGE>
13
ARTICLE VI
Resignations
Any director or officer of the Corporation, whether elected or appointed,
may resign at any time by giving written notice of such resignation to the
Chairman of the Board of Directors, the President, or the Secretary, and such
resignation shall be deemed effective as of the close of business on the date
said notice is received by the Chairman of the Board of Directors, the
President, or the Secretary, or at such later time as is specified therein. No
formal action shall be required of the Board of Directors or the stockholders to
make any such resignation effective.
ARTICLE VII
Capital Stock; Dividends; Seal
Section 1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by such person's attorney, upon surrender for cancellation of certificates for
at least the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. The certificates of stock shall be numbered and signed by the Chairman
of the Board of Directors, the President, an Executive Vice President, a Senior
Vice President or a Vice President, and also by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary. Any and all signatures
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
Section 2. Lost, Destroyed or Stolen Certificate. Any person claiming a
stock certificate in lieu of one lost, destroyed or stolen, shall give the
Corporation an affidavit as to his, her or its ownership of the certificate and
of the facts which go to prove that it has been lost, destroyed or stolen. If
required by the Board of Directors or any financial officer of the Corporation,
he, she or it also shall give the Corporation a bond, in such form as may be
approved by the Board of Directors or such financial officer, sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of the certificate or the issuance of a new
certificate. A new certificate shall be issued upon receipt of such an affidavit
and, if required, upon the giving of such a bond.
Section 3. Record of holder of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares as the holder in fact thereof,
and accordingly shall not be bound to recognize any equitable or other claims to
or interest in such shares on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
General Corporation Law of the State of Delaware. The Corporation shall be
<PAGE>
14
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends and to vote as such owner.
Section 4. Dividends. The Board of Directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares of capital
stock in the manner and upon the terms and conditions provided by law and the
Charter.
Section 5. Corporate Seal. The corporate seal shall be in such form as
shall from time to time be approved by the Board of Directors. If and when so
authorized by the Board of Directors, a duplicate of the seal may be kept and
used by the Secretary or Treasurer or by any Assistant Secretary or Assistant
Treasurer.
ARTICLE VIII
Execution of Contracts and Other Documents
Section 1. Contracts, etc. Except as otherwise required by law, the Charter
or these By-laws, such officers, employees or agents of the Corporation as shall
be specified by the Board of Directors shall sign, in the name and on behalf of
the Corporation, all deeds, bonds, contracts, mortgages and other instruments or
documents, the execution of which shall be authorized by the Board of Directors;
and such authority may be general or confined to specific instances. Except as
so authorized by the Board of Directors, no officer, agent or employee of the
Corporation shall have power or authority to bind the Corporation by any
contract or engagement or to pledge, mortgage, sell or otherwise dispose of its
credit or any of its property or to render it pecuniarily liable for any purpose
or in any amount.
Section 2. Checks, Drafts, etc. Except as otherwise provided in these
By-laws, all checks, drafts, notes, bonds, bills of exchange or other orders,
instruments or obligations for the payment of money shall be signed by such
officer or officers, employee or employees, or agent or agents, as the Board of
Directors shall by resolution direct. The Board of Directors may, in its
discretion, also provide by resolution for the countersignature or registration
of any or all such orders, instruments or obligations for the payment of money.
Section 3. Proxies. Unless otherwise prescribed by resolution adopted by
the Board of Directors, the Chairman of the Board of Directors, the President or
any Executive Vice President, Senior Vice President or Vice President may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he or she may deem necessary or
proper in the premises.
<PAGE>
15
ARTICLE IX
Fiscal Year
The fiscal year of the Company shall begin the first day of July in each
year.
ARTICLE X
Miscellaneous
Section 1. Notices and Waivers Thereof. Whenever any notice whatever is
required by these By-laws, the Charter or any of the laws of the State of
Delaware to be given to any stockholder, director or officer, such notice,
except as otherwise provided by the laws of the State of Delaware, may be given
personally or by telephone or be given by facsimile transmission or other form
of electronic communication, addressed to such stockholder at such person's
address as it appears on the stock transfer books of the Corporation, or to such
director or officer at his or her Corporation location, if any, or at such
address as appears on the books of the Corporation, or the notice may be given
in writing by depositing the same in a post office, or in a regularly maintained
letter box, or by sending it via courier in a postpaid, sealed wrapper addressed
to such stockholder at such person's address as it appears on the stock transfer
books of the Corporation, or to such director or officer at his or her
Corporation location, if any, or such address as appears on the books of the
Corporation.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
A waiver of any such notice in writing, including by facsimile
transmission, signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the time stated
therein, shall be deemed equivalent to the notice required to be given, and the
presence at any meeting of any person entitled to notice thereof shall be deemed
a waiver of such notice as to such person.
Section 2. Audits. The accounts, books and records of the Corporation shall
be audited upon the conclusion of each fiscal year by an independent certified
public accountant selected by the Board of Directors, and it shall be the duty
of the Board of Directors to cause such audit to be done annually.
ARTICLE XI
Amendments
These By-laws may be altered, amended or repealed, and new By-laws may be
adopted (a) at any annual or special meeting of stockholders by the affirmative
vote of the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereat, provided, however, that any proposed
alteration, amendment or repeal of, or the adoption of any
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16
By-law inconsistent with, Sections 3, 5 or 10 of Article II or Sections 1 or 5
of Article III of the By-laws by the stockholders shall require the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, and provided, further, however,
that, in the case of any such stockholder action at a special meeting of
stockholders, notice of the proposed alteration, amendment, repeal or adoption
of the new By-law or By-laws must be contained in the notice of such special
meeting, or (b) by the affirmative vote of a majority of the Whole Board.
MIPS TECHNOLOGIES, INC.
1998 LONG-TERM INCENTIVE PLAN
(as amended August 27, 1998)
<PAGE>
MIPS TECHNOLOGIES, INC.
1998 LONG-TERM INCENTIVE PLAN
1. Purposes
The purposes of the Plan are to (a) promote the long-term success of the
Company and to increase stockholder value by providing Eligible Individuals and
Consultants with incentives to contribute to the long-term growth and
profitability of the Company and (b) assist the Company in attracting, retaining
and motivating highly qualified individuals. The Plan permits the Committee to
make Awards which constitute "qualified performance-based compensation" for
purposes of Section 162(m) of the Code.
2. Definitions
For purposes of the Plan, the following terms shall be defined as follows:
"Administrator" means the individual or individuals to whom the Committee
delegates authority under the Plan in accordance with Section 3(d).
"Award" means an award made pursuant to the terms of the Plan to an
Eligible Individual in the form of Stock Options, Stock Appreciation Rights,
Stock Awards, Restricted Stock, Performance Units or Other Awards.
"Award Document" means a written document approved in accordance with
Section 3 which sets forth the terms and conditions of the Award to the
Participant. An Award Document may be in the form of (i) an agreement between
the Company which is executed by an officer on behalf of the Company and is
signed by the Participant or (ii) a certificate issued by the Company which is
executed by an officer on behalf of the Company but does not require the
signature of the Participant.
"Board" means the Board of Directors of the Company.
"Cause" means the termination of Purchaser's employment as a result of: (i)
an act or acts of dishonesty undertaken by such Purchaser and intended to result
in gain or personal enrichment of the Purchaser, (ii) persistent failure to
perform the duties and obligations of such Purchaser which is not remedied in a
reasonable period of time after receipt of written notice from Employer, (iii)
violation of confidentiality or proprietary information obligations to or
agreements entered into with the Employer, (iv) use, sale or distribution of
illegal drugs on the Employer's premises, (v) threatening, intimidating or
coercing or harassing fellow employees, or (vi) the conviction of such Purchaser
of a felony.
<PAGE>
"Change in Control" means:
(i) the acquisition of any Person (as such term is used in Sections
13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act") as Beneficial Owner (as such term is used in Rule 13d-3
promulgated under the 1934 Act), directly or indirectly, of fifty percent
(50%) or more of the combined voting power of the outstanding shares of
capital stock of the Company's then outstanding securities with respect to
the election of the directors of the Board.
(ii) During any period of three (3) consecutive years, individuals
who, at the beginning of such period, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a Director of the Board subsequent
to the date of this Agreement whose election, or a nomination for election
by the Company's shareholders, was approved by the vote of at least a
majority of the directors then comprising the Incumbent Board (other than
an election or nomination of any individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the directors of the Board, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) shall
be, for these purposes, considered as though such person were a member of
the Incumbent Board.
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations (including any proposed regulations)
thereunder.
"Committee" means the Compensation Committee of the Board, any successor
committee thereto or any other committee appointed from time to time by the
Board to administer the Plan. The Committee shall consist of at least two
individuals and shall serve at the pleasure of the Board.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Company" means MIPS Technologies, Inc., a Delaware corporation.
"Consultant" means any person, including an advisor, engaged by the Company
to render services and who is compensated for such services. The term Consultant
shall include directors on the Board.
"Eligible Individuals" means the individuals described in Section 6 who are
eligible for Awards under the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the applicable rulings and regulations thereunder.
"Fair Market Value" means, with respect to a share of Common Stock, the
fair market value thereof as of the relevant date of determination, as
determined in accordance with a valuation methodology approved by the Committee.
In the absence of any alternative valuation methodology approved by the
Committee, the Fair Market Value of a share of Common Stock shall equal the
closing selling price of a share of Common Stock as reported on the composite
2
<PAGE>
tape for securities listed on the Nasdaq National Market, or such other national
securities exchange as may be designated by the Committee, or, in the event that
the Common Stock is not listed for trading on a national securities exchange but
is quoted on an automated system, on such automated system, in any such case on
the valuation date (or, if there were no sales on the valuation date, the
average of the highest and the lowest quoted selling prices as reported on said
composite tape or automated system for the most recent day during which a sale
occurred).
"Good Reason" for voluntary resignation means (i) the Employer reduces by
ten percent (10%) or more the Purchaser's compensation at the rate in effect
immediately prior to the Change of Control or (ii) without the Purchaser's
express written consent, the Employer requires the Purchaser to change the
location of his or her job or office, so that he or she will be based at a
location more than fifty (50) miles from the location of his or her job or
office immediately prior to the Change of Control. For these purposes,
"Compensation" means base salary, exclusive of bonus, incentive compensation and
shift differential, paid by the Employer as consideration for the Purchaser's
service.
"Incentive Stock Option" means a Stock Option which is an "incentive stock
option" within the meaning of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option in an Award Document.
"Nonqualified Stock Option" means a Stock Option which is not an Incentive
Stock Option.
"Other Award" means any other form of award authorized under Section 13 of
the Plan.
"Participant" means an Eligible Individual to whom an Award has been
granted under the Plan.
"Performance Unit" means a performance unit granted to an Eligible
Individual pursuant to Section 12 hereof which is subject to performance
criteria.
"Plan" means this MIPS Technologies, Inc.1998 Long-Term Incentive Plan as
described herein.
"Restricted Stock" means Common Stock granted to an Eligible Individual
pursuant to Section 11 hereof which is subject to restrictions.
"Restoration Option" means a Stock Option that is awarded upon the exercise
of a Stock Option earlier awarded under the Plan (an "Underlying Option") for
which the exercise price is paid in whole or in part by tendering shares of
Common Stock previously owned by the Participant, where such Restoration Option
(i) covers a number of shares of Common Stock no greater than the number of
previously owned shares tendered in payment of the exercise price of the
Underlying Option plus the number of shares withheld to pay taxes arising upon
such exercise, (ii) the expiration date of the Restoration Option is no later
than the expiration date of the Underlying Option and (iii) the exercise price
per share of the Restoration Option is no less than the Fair Market Value per
share of Common Stock on the date of exercise of the Underlying Option.
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<PAGE>
"Stock Appreciation Right" means a right to receive all or some portion of
the appreciation on shares of Common Stock granted to an Eligible Individual
pursuant to Section 9 hereof.
"Stock Award" means a share of Common Stock granted to an Eligible
Individual for no consideration other than the provision of services or offer
for sale to an Eligible Employee at a purchase price determined by the
Committee, in either case pursuant to Section 10 hereof.
"Stock Option" means an Award to purchase shares of Common Stock granted to
an Eligible Individual pursuant to Section 8 hereof, which Award may be either
an Incentive Stock Option or a Nonqualified Stock Option.
"Substitute Award" means an Award granted upon assumption of, or in
substitution for, outstanding awards previously granted by a company or other
entity in connection with a corporate transaction, such as a merger,
combination, consolidation or acquisition of property or stock.
3. Administration of the Plan
(a) Power and Authority of the Committee. The Plan shall be administered by
the Committee, which shall have full power and authority, subject to the express
provisions hereof:
(i) to select Participants from the Eligible Individuals;
(ii) to make Awards in accordance with the Plan;
(iii) to determine the number of shares of Common Stock subject to
each Award or the cash amount payable in connection with an Award;
(iv) to determine the terms and conditions of each Award, including,
without limitation, those related to vesting, forfeiture, payment and
exercisability, and the effect, if any, of a Participant's termination of
employment with the Company, and including the authority to amend the terms
and conditions of an Award after the granting thereof to a Participant in a
manner that is not, without the consent of the Participant, prejudicial to
the rights of such Participant in such Award;
(v) to specify and approve the provisions of the Award Documents
delivered to Participants in connection with their Awards;
(vi) to construe and interpret any Award Document delivered under the
Plan;
(vii) to prescribe, amend and rescind rules and procedures relating to
the Plan;
(viii) to vary the terms of Awards to take account of tax, securities
law and other regulatory requirements of foreign jurisdictions;
4
<PAGE>
(ix) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of its
authority under the Plan;
(x) to employ such legal counsel, independent auditors and consultants
as it deems desirable for the administration of the Plan and to rely upon
any opinion or computation received therefrom; and
(xi) to make all other determinations and to formulate such procedures
as may be necessary or advisable for the administration of the Plan.
(b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.
(c) Determinations of Committee Final and Binding. All determinations by
the Committee in carrying out and administering the Plan and in construing and
interpreting the Plan shall be final, binding and conclusive for all purposes
and upon all persons interested herein.
(d) Delegation of Authority. The Committee may, but need not, from time to
time delegate some or all of its authority under the Plan to an Administrator
consisting of one or more members of the Committee or of one or more officers of
the Company; provided, however, that the Committee may not delegate its
authority (i) to make Awards to Eligible Individuals who are officers of the
Company who are delegated authority by the Committee hereunder, or (ii) under
Sections 3(b) and 16 of the Plan. Any delegation hereunder shall be subject to
the restrictions and limits that the Committee specifies at the time of such
delegation or thereafter. Nothing in the Plan shall be construed as obligating
the Committee to delegate authority to an Administrator, and the Committee may
at any time rescind the authority delegated to an Administrator appointed
hereunder or appoint a new Administrator. At all times, the Administrator
appointed under this Section 3(d) shall serve in such capacity at the pleasure
of the Committee. Any action undertaken by the Administrator in accordance with
the Committee's delegation of authority shall have the same force and effect as
if undertaken directly by the Committee, and any reference in the Plan to the
Committee shall, to the extent consistent with the terms and limitations of such
delegation, be deemed to include a reference to the Administrator.
(e) Liability of Committee. No member of the Committee shall be liable for
any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the manner
provided in the Company's certificate of incorporation as it may be amended from
time to time. In the performance of its responsibilities with respect to the
Plan, the Committee shall be entitled to rely upon information and advice
furnished by the Company's officers, the Company's accountants, the Company's
counsel and any other party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in reliance upon any
such advice.
(f) Action by the Board. Anything in the Plan to the contrary
notwithstanding, any authority or responsibility which, under the terms of the
Plan, may be exercised by the Committee may alternatively be exercised by the
Board.
5
<PAGE>
4. Effective Date and Term
The Plan shall become effective upon its adoption by the Board subject to
its approval by the stockholders of the Company. Prior to such stockholder
approval, the Committee may grant Awards conditioned on stockholder approval. If
such stockholder approval is not obtained at or before the first annual meeting
of stockholders to occur after the adoption of the Plan by the Board (including
any adjournment or adjournments thereof), the Plan and any Awards made
thereunder shall terminate ab initio and be of no further force and effect. In
no event shall any Awards be made under the Plan after the [fifth] anniversary
of the date of stockholder approval.
5. Shares of Common Stock Subject to the Plan
(a) General. Subject to adjustment as provided in Section 15(b) hereof, the
number of shares of Common Stock that may be issued pursuant to Awards under the
Plan (the "Section 5 Limit") shall not exceed, in the aggregate, 6,600,000.
Shares issued under this Plan may be either authorized but unissued shares,
treasury shares or any combination thereof.
(b) Rules Applicable to Determining Shares Available for Issuance. For
purposes of determining the number of shares of Common Stock that remain
available for issuance, the following shares shall be added back to the Section
5 Limit and again be available for Awards:
(i) The number of shares tendered to pay the exercise price of a Stock
Option or other Award; and
(ii) The number of shares withheld from any Award to satisfy a
Participant's tax withholding obligations or, if applicable, to pay the
exercise price of a Stock Option or other Award.
In addition, any shares issued underlying Substitute Awards shall not be
counted against the Section 5 Limit and shall not be subject to Section 5(c)
below.
(c) Special Limits. Anything to the contrary in Section 5(a) above
notwithstanding, but subject to Section 15(b) below, the following special
limits shall apply to shares of Common Stock available for Awards under the
Plan:
(i) The maximum number of shares that may be issued in the form of
Stock Awards, or issued upon settlement of Restricted Stock or Other
Awards, shall equal 800,000 shares, of which no more than a number of
shares equal to 10% of the Section 5 Limit shall be in the form of Other
Awards, provided, however, that any such Stock Awards, Restricted Stock or
Other Awards that are issued in lieu of cash compensation that otherwise
would be paid to a Participant, or in satisfaction of any other obligation
owed by the Company to a Participant, shall not be counted against such
limitation; and
(ii) The maximum number of shares of Common Stock that may be subject
to Stock Options or Stock Appreciation Rights granted to any Eligible
Individual in any fiscal year
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<PAGE>
of the Company shall equal 3,000,000 shares plus any shares which were
available under this Section 5(c)(ii) for Awards of Stock Options or Stock
Appreciation Rights to such Eligible Individual in any prior fiscal year
but which were not covered by such Awards.
(iii) The maximum number of Performance Units that may be granted to
any Eligible Individual in any fiscal year of the Company shall equal
3,000,000 units plus any Performance Units which were available under this
Section 5(c)(iii) for Awards of Performance Units to such Eligible
Individual in any prior fiscal year but which were not covered by such
Awards
6. Eligible Individuals
Awards may be granted by the Committee to Eligible Individuals who are
officers or other key employees of the Company or Consultants; provided,
however, that Consultants shall not be eligible to receive Incentive Stock
Options. An individual's status as an Administrator will not, by itself, affect
his or her eligibility to participate in the Plan.
7. Awards in General
(a) Types of Award and Award Document. Awards under the Plan may consist of
Stock Options, Stock Appreciation Rights, Stock Awards, Restricted Stock,
Performance Stock or Other Awards. Any Award described in Sections 8 through 13
of the Plan may be granted singly or in combination or in tandem with any other
Award, as the Committee may determine. Awards may be made in combination with,
in replacement of, or as alternatives to grants of rights under any other
employee compensation plan of the Company, including the plan of any acquired
entity, or may be granted in satisfaction of the Company's obligations under any
such plan.
(b) Terms Set Forth in Award Document. The terms and provisions of an Award
shall be set forth in a written Award Document approved by the Committee and
delivered or made available to the Participant as soon as administratively
practicable following the date of such Award. The vesting, exercisability,
payment and other restrictions applicable to an Award (which may include,
without limitation, restrictions on transferability or provision for mandatory
resale to the Company) shall be determined by the Committee and set forth in the
applicable Award Document. Notwithstanding the foregoing, the Committee may
accelerate (i) the vesting or payment of any Award, (ii) the lapse of
restrictions on any Award or (iii) the date on which any Stock Option, Stock
Appreciation Right or Other Award first becomes exercisable.
(c) Termination of Employment and Change in Control. The Committee shall
also have full authority to determine and specify in the applicable Award
Document the effect, if any, that a Participant's termination of employment for
any reason will have on the vesting, exercisability, payment or lapse of
restrictions applicable to an Award. The date of a Participant's termination of
employment for any reason shall be determined in the sole discretion of the
Committee. Similarly, subject to Section 15(c), the Committee shall have full
authority to determine the effect, if any, of a Change in Control of the Company
on the vesting, exercisability, payment or lapse of restrictions
7
<PAGE>
applicable to an Award, which effect may be specified in the applicable Award
Document or determined at a subsequent time.
(d) Dividends and Dividend Equivalents. The Committee may provide
Participants with the right to receive dividends or payments equivalent to
dividends or interest with respect to an outstanding Awards, which payments can
either be paid currently or deemed to have been reinvested in shares of Common
Stock, and can be made in Common Stock, cash or a combination thereof, as the
Committee shall determine.
8. Stock Options
(a) Terms of Stock Options Generally. A Stock Option shall entitle the
Participant to whom the Stock Option was granted to purchase a specified number
of shares of Common Stock during a specified period at a price that is
determined in accordance with Section 8(b) below. Stock Options may be either
Nonqualified Stock Options or Incentive Stock Options. The Committee will fix
the vesting and exercisability conditions applicable to a Stock Option, provided
that no Stock Option shall vest sooner than twelve months from the date of grant
(subject to early vesting, if so provided by the Committee, upon termination of
employment or change in control of the Company), but provided further that such
minimum vesting period shall not apply to any Restoration Option.
(b) Exercise Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be fixed by the Committee at the time of
grant or, alternatively, shall be determined by a method specified by the
Committee at the time of grant; provided, however, that, except as provided in
Section 15(b) below, the exercise price per share of Common Stock applicable to
a Stock Option may not be adjusted or amended, including by means of amendment,
cancellation or the replacement of such Stock Option with a subsequently awarded
Stock Option. Notwithstanding the foregoing, the exercise price per share of a
Stock Option that is a Substitute Award may be less than the Fair Market Value
per share on the date of award, provided that the excess of:
(i) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares of Common Stock subject to the
Substitute Award, over
(ii) the aggregate exercise price thereof,
does not exceed the excess of:
(iii) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such
fair market value to be determined by the Committee) of the shares
of the predecessor entity that were subject to the award assumed or
substituted for by the Company, over
(iv) the aggregate exercise price of such shares.
(c) Option Term. The term of each Stock Option shall be fixed by the
Committee and shall not exceed ten years from the date of grant.
8
<PAGE>
(d) Incentive Stock Options. Each Stock Option granted pursuant to the Plan
shall be designated at the time of grant as either an Incentive Stock Option or
as a Nonqualified Stock Option. No Incentive Stock Option may be issued pursuant
to the Plan to any individual who, at the time the Stock Option is granted, owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any of its Subsidiaries, unless (A) the exercise
price determined as of the date of grant is at least 110% of the Fair Market
Value on the date of grant of the shares of Common Stock subject to such Stock
Option, and (B) the Incentive Stock Option is not exercisable more than five
years from the date of grant thereof. No Incentive Stock Option may be granted
under the Plan after the tenth anniversary of the Effective Date.
(e) Method of Exercise. Subject to the provisions of the applicable Award
Document, the exercise price of a Stock Option may be paid in cash or previously
owned shares or a combination thereof and, if the applicable Award Document so
provides, in whole or in part through the withholding of shares subject to the
Stock Option with a value equal to the exercise price. In accordance with the
rules and procedures established by the Committee for this purpose, the Stock
Option may also be exercised through a "cashless exercise" procedure approved by
the Committee involving a broker or dealer approved by the Committee, that
affords Participants the opportunity to sell immediately some or all of the
shares underlying the exercised portion of the Stock Option in order to generate
sufficient cash to pay the Stock Option exercise price and/or to satisfy
withholding tax obligations related to the Stock Option.
(f) Accelerated Vesting Upon Death or Disability. In the event a
Participant terminates his or her service with the Company due to Participant's
death or disability (as defined in Section 22(e)(3) of the Code), all Stock
Options granted to Participant shall become fully vested and exercisable upon
such termination and remain exercisable for the period of time stated in the
Participant's stock option agreement.
9. Stock Appreciation Rights
(a) General. A Stock Appreciation Right shall entitle a Participant to
receive, upon satisfaction of the conditions to the payment specified in the
applicable Award Document, an amount equal to the excess, if any, of the Fair
Market Value on the exercise date of the number of shares of Common Stock for
which the Stock Appreciation Right is exercised, over the exercise price for
such Stock Appreciation Right specified in the applicable Award Document. The
exercise price per share of Common Stock covered by a Stock Appreciation Right
shall be fixed by the Committee at the time of grant or, alternatively, shall be
determined by a method specified by the Committee at the time of grant;
provided, however, that, except as provided in Section 9(b) below, the exercise
price per share shall be no less than 100% of the Fair Market Value per share on
the date of grant (or if the exercise price is not fixed on the date of grant,
then on such date as the exercise price is fixed); and provided further, that,
except as provided in Section 15(b) below, the exercise price per share of
Common Stock subject to a Stock Appreciation Right may not be adjusted or
amended, including by means of amendment, cancellation or the replacement of
such Stock Appreciation Right with a subsequently awarded Stock Appreciation
Right. Notwithstanding the foregoing, the exercise price per share of a Stock
Appreciation Right that is a Substitute Award may be less than the Fair Market
Value per share on the date of award, provided, that such exercise price is not
less than the minimum exercise price that would be permitted for an equivalent
Stock Option as determined in accordance with Section 8(b) above. At
9
<PAGE>
the sole discretion of the Committee, payments to a Participant upon exercise of
a Stock Appreciation Right may be made in cash, in shares of Common Stock having
an aggregate Fair Market Value as of the date of exercise equal to such amount,
or in a combination of cash and shares of Common Stock having an aggregate value
as of the date of exercise equal to such amount. A Stock Appreciation Right may
be granted alone or in addition to other Awards, or in tandem with a Stock
Option.
(b) Stock Appreciation Rights in Tandem with Stock Options. A Stock
Appreciation Right granted in tandem with a Stock Option may be granted either
at the same time as such Stock Option or subsequent thereto. If granted in
tandem with a Stock Option, a Stock Appreciation Right shall cover the same
number of shares of Common Stock as covered by the Stock Option (or such lesser
number of shares as the Committee may determine) and shall be exercisable only
at such time or times and to the extent the related Stock Option shall be
exercisable, and shall have the same term and exercise price as the related
Stock Option (which, in the case of a Stock Appreciation Right granted after the
grant of the related Stock Option, may be less than the Fair Market Value per
share on the date of grant of the tandem Stock Appreciation Right). Upon
exercise of a Stock Appreciation Right granted in tandem with a Stock Option,
the related Stock Option shall be canceled automatically to the extent of the
number of shares covered by such exercise; conversely, if the related Stock
Option is exercised as to some or all of the shares covered by the tandem grant,
the tandem Stock Appreciation Right shall be canceled automatically to the
extent of the number of shares covered by the Stock Option exercise.
10. Stock Awards
(a) General. A Stock Award shall consist of one or more shares of Common
Stock granted to a Participant for no consideration other than the provision of
services (or, if required by applicable law in the reasonable judgment of the
Company, for payment of the par value of such shares). Stock Awards shall be
subject to such restrictions (if any) on transfer or other incidents of
ownership for such periods of time, and shall be subject to such conditions of
vesting, as the Committee may determine and as shall be set forth in the
applicable Award Document.
(b) Distributions. Any shares of Common Stock or other securities of the
Company received by a Participant to whom a Stock Award has been granted as a
result of a stock distribution to holders of Common Stock or as a stock dividend
on Common Stock shall be subject to the same terms, conditions and restrictions
as such Stock Award.
11. Restricted Stock
(a) General An Award of Restricted Stock shall consist of a grant of one or
more shares of Common Stock to a Participant for no consideration other than the
provision of services or may be offered for sale to a Participant at a purchase
price determined by the Committee, subject to the terms and conditions
established by the Committee in connection with the Award and as set forth in
the applicable Award Document. Such shares of Common Stock shall be subject to
such restrictions on transfer or other incidents of ownership for such periods
of time, and shall be subject to such conditions of vesting, as the Committee
may determine and as shall be set forth in the Award Document relating to such
stock. If shares of Common Stock are offered for sale under the Plan, the
purchase price shall be payable in cash, or, in the sole discretion of the
Committee and to the extent provided in any applicable
10
<PAGE>
Award Document, in shares of Common Stock already owned by the Participant, for
other consideration acceptable to the Committee or in any combination of cash,
shares of Common Stock or such other consideration. Subject to Sections 8(f) and
15(c), Restricted Stock that is granted in respect of individual or corporate
performance shall vest no sooner than one year from the date of grant, and
Restricted Stock that is granted in connection with hiring or retention
arrangements between the Company and a Participant shall vest no sooner than
three years from the date of grant.
(b) Share Certificates; Rights and Privileges. At the time Restricted Stock
is granted or sold to a Participant, share certificates representing the
appropriate number of shares or Restricted Stock shall be registered in the name
of the Participant but shall be held by the Company in custody for the account
of such person. The certificates shall bear a legend restricting their
transferability as provided herein. Except for such restrictions on transfer or
other incidents of ownership as may be determined by the Committee and set forth
in the Award Document relating to an award or sale of Restricted Stock, a
Participant shall have the rights of a stockholder as to such Restricted Stock,
including the right to receive dividends and the right to vote in accordance
with the Company's certificate of incorporation.
(c) Distributions. Any shares of Common Stock or other securities of the
Company received by a Participant to whom Restricted Stock has been granted or
sold as a result of a stock distribution to holders of Common Stock or as a
stock dividend on Common Stock shall be subject to the same terms, conditions
and restrictions as such Restricted Stock.
12. Performance Units
Performance Units may be granted as fixed or variable share- or
dollar-denominated units subject to such conditions of vesting and time of
payment as the Committee may determine and as shall be set forth in the
applicable Award Document relating to such Performance Units. Performance Units
may be paid in Common Stock upon the satisfaction of the applicable performance
criteria as described in the Award Document, cash or a combination of Common
Stock and cash, as the Committee may determine.
13. Other Awards
The Committee shall have the authority to specify the terms and provisions
of other forms of equity-based or equity-related Awards not described above
which the Committee determines to be consistent with the purpose of the Plan and
the interests of the Company, which Awards may provide for cash payments based
in whole or in part on the value or future value of Common Stock, for the
acquisition or future acquisition of Common Stock, or any combination thereof.
Other Awards shall also include cash payments (including the cash payment of
dividend equivalents) under the Plan which may be based on one or more criteria
determined by the Committee which are unrelated to the value of Common Stock and
which may be granted in tandem with, or independent of, other Awards under the
Plan.
11
<PAGE>
14. Certain Restrictions
(a) Transfers. Unless the Committee determines otherwise, no Award shall be
transferable other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order; provided, however, that the Committee
may, in its discretion and subject to such terms and conditions as it shall
specify, permit the transfer of an Award for no consideration to a Participant's
family members or to one or more trusts or partnerships established in whole or
in part for the benefit of one or more of such family members (collectively,
"Permitted Transferees"). Any Award transferred to a Permitted Transferee shall
be further transferable only by will or the laws of descent and distribution or,
for no consideration, to another Permitted Transferee of the Participant. The
Committee may in its discretion permit transfers of Awards other than those
contemplated by this Section 14.
(b) Exercise. During the lifetime of the Participant, a Stock Option, Stock
Appreciation Right or similar-type Other Award shall be exercisable only by the
Participant or by a Permitted Transferee to whom such Stock Option, Stock
Appreciation Right or Other Award has been transferred in accordance with
Section 14(a).
15. Recapitalization or Reorganization
(a) Authority of the Company and Stockholders. The existence of the Plan,
the Award Documents and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior preference
stocks whose rights are superior to or affect the Common Stock or the rights
thereof or which are convertible into or exchangeable for Common Stock, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) Change in Capitalization. Notwithstanding any provision of the Plan or
any Award Document, the number and kind of shares authorized for issuance under
Section 5(a) above, including the maximum number of shares available under the
special limits provided for in Section 5(c) above, may be equitably adjusted in
the sole discretion of the Committee in the event of a stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, extraordinary
dividend, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value or other similar corporate event affecting the Common Stock in
order to preserve, but not increase, the benefits or potential benefits intended
to be made available under the Plan. In addition, upon the occurrence of any of
the foregoing events, the number of outstanding Awards and the number and kind
of shares subject to any outstanding Award and the purchase price per share, if
any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to
preserve the benefits or potential benefits intended to be made available to
Participants granted Awards. Such
12
<PAGE>
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final. Unless
otherwise determined by the Committee, such adjusted Awards shall be subject to
the same vesting schedule and restrictions to which the underlying Award is
subject.
(c) Change in Control. In the event of the involuntary termination of a
Participant's employment with the Company not for Cause or a Participant's
termination of employment with the Company for Good Reason within twenty-four
months after a Change in Control of the Company, the following shall occur: (i)
all of such participant's outstanding stock options and stock appreciation
rights shall become vested and exercisable, (ii) all restrictions and conditions
of all Stock Awards and Restricted Stock held by such Participant shall lapse
and (iii) all Performance Units and any Other Awards held by such Participant
shall be deemed to be fully earned.
16. Amendments; Termination
The Board or Committee may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part; provided, however, that any
amendment which under the requirements of any applicable law or stock exchange
rule must be approved by the stockholders of the Company shall not be effective
unless and until such stockholder approval has been obtained in compliance with
such law or rule; and provided further that, except as contemplated by Section
15(b) above, the Board or Committee may not, without the approval of the
Company's stockholders, increase the maximum number of shares issuable under the
Plan or reduce the exercise price of a Stock Option or Stock Appreciation Right.
No termination or amendment of the Plan may, without the consent of the
Participant to whom an Award has been granted, adversely affect the rights of
such Participant under such Award. Notwithstanding any provision herein to the
contrary, the Board or Committee shall have broad authority to amend the Plan or
any Award under the Plan to take into account changes in applicable tax laws,
securities laws, accounting rules and other applicable state and federal laws.
17. Miscellaneous
(a) Tax Withholding. The Company may require any individual entitled to
receive a payment in respect of an Award to remit to the Company, prior to such
payment, an amount sufficient to satisfy any Federal, state or local tax
withholding requirements. The Company shall also have the right to deduct from
all cash payments made pursuant to or in connection with any Award any Federal,
state or local taxes required to be withheld with respect to such payments. In
addition, the Company may permit any individual to whom an Award has been made
to satisfy, in whole or in part, such obligation to remit taxes, by directing
the Company to withhold shares of Common Stock that would otherwise be received
by such individual upon settlement or exercise of such Award or by delivering to
the Company shares of Common Stock owned by the individual prior to exercising
the option, subject to such rules as the Committee may establish from time to
time. The value of any share of Common Stock to be withheld by the Company
pursuant to this Section 17(a) shall be the Fair Market Value on the date to be
used to determine the amount of tax to be withheld.
(b) No Right to Grants or Employment. No Eligible Individual or Participant
shall have any claim or right to receive grants of Awards under the Plan.
Nothing in the Plan or in any
13
<PAGE>
Award or Award Document shall confer upon any employee of the Company any right
to continued employment with the Company or interfere in any way with the right
of the Company to terminate the employment of any of its employees at any time,
with or without cause.
(c) Other Compensation. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs.
(d) Other Employee Benefit Plans. Payments received by a Participant under
any Award made pursuant to the Plan shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Company, unless otherwise specifically
provided for under the terms of such plan or arrangement or by the Committee.
(e) Unfunded Plan. The Plan is intended to constitute an unfunded plan for
incentive compensation. Prior to the payment or settlement of any Award, nothing
contained herein shall give any Participant any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or payments in lieu
thereof with respect to awards hereunder.
(f) Securities Law Restrictions. The Committee may require each Eligible
Individual purchasing or acquiring shares of Common Stock pursuant to a Stock
Option or other Award under the Plan to represent to and agree with the Company
in writing that such Eligible Individual is acquiring the shares for investment
and not with a view to the distribution thereof. All certificates for shares of
Common Stock delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any exchange upon which the Common Stock is then listed, and any
applicable federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions. No shares of Common Stock shall be issued hereunder unless
the Company shall have determined that such issuance is in compliance with, or
pursuant to an exemption from, all applicable federal and state securities laws.
(g) Compliance with Rule 16b-3. Notwithstanding anything contained in the
Plan or in any Award Document to the contrary, if the consummation of any
transaction under the Plan would result in the possible imposition of liability
on a Participant pursuant to Section 16(b) of the Exchange Act, the Committee
shall have the right, in its sole discretion, but shall not be obligated, to
defer such transaction or the effectiveness of such action to the extent
necessary to avoid such liability, but in no event for a period longer than six
months.
(h) Award Document. In the event of any conflict or inconsistency between
the Plan and any Award Document, the Plan shall govern, and the Award Document
shall be interpreted to minimize or eliminate any such conflict or
inconsistency.
(i) Expenses. The costs and expenses of administering the Plan shall be
borne by the Company.
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<PAGE>
(j) Application of Funds. The proceeds received from the Company from the
sale of Common Stock or other securities pursuant to Awards will be used for
general corporate purposes.
(k) Applicable Law. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to conflicts of law
principles.
15
MIPS TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Effective as of June 1, 1998)
(Amended as of August 27, 1998)
The following constitutes the provisions of the MIPS Technologies, Inc.
Employee Stock Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through payroll deductions. It is believed that employee
participation in ownership of the Company on this basis will be to the mutual
benefit of the employees and the Company. It is the intention of the Company
that the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Code. The provisions of the Plan shall, accordingly, be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.
2. DEFINITIONS.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock, $0.001 par value, of the
Company.
"Company" means MIPS Technologies, Inc.
"Committee" means the committee appointed by and serving at the
pleasure of the Board to administer the Plan pursuant to Section 14.
"Compensation" means base pay, plus any amounts attributable to
overtime, shift premium, incentive compensation, bonuses and commissions
(exclusive of "spot bonuses" and any other such item specifically directed
for all Employees by the Board or a committee), designated by the Board,
but shall exclude severance pay, pay in lieu of vacations, back pay awards,
disability benefits, deferred compensation, or any other compensation
excluded in the discretion of the Board.
Compensation shall be determined before giving effect to any salary
reduction agreement pursuant to a qualified cash or deferred arrangement
within the meaning of Section 401(k) of the Code or to any similar
reduction agreement pursuant to any cafeteria plan (within the meaning of
Section 125 of the Code).
"Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be
<PAGE>
considered interrupted in the case of a leave of absence agreed to in
writing by the Company, provided that such leave is for a period of not
more than 90 days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.
"Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
"Employee" means any person, including an officer, who is customarily
employed for at least twenty (20) hours per week and more than five (5)
months in a calendar year by the Company or one of its Designated
Subsidiaries.
"Exercise Date" means the last business day of each Exercise Period in
an Offering Period.
"Exercise Period" means a six-month period commencing on an Offering
Date or on the first business day after any Exercise Date in an Offering
Period.
"Offering Date" means the first day of each Offering Period of the
Plan.
"Offering Period" means a period of twenty-four (24) months consisting
of four six-month Exercise Periods during which options granted pursuant to
the Plan may be exercised.
"Plan" means the MIPS Technologies, Inc. Employee Stock Purchase Plan.
"Subsidiary" means any corporation, domestic or foreign, in which the
Company owns, directly or indirectly, 50% or more of the voting shares.
3. ELIGIBILITY.
(a) Any person who is an Employee, as defined in paragraph 2, on the
Offering Date of a given Offering Period shall be eligible to participate
in such Offering Period under the Plan, subject to the requirements of
paragraph 5(a) and the limitations imposed by Section 423(b) of the Code.
(b) Notwithstanding any provisions of the Plan to the contrary, no
Employee shall be granted an option under the Plan if (i) immediately after
the grant, such Employee (or any other person whose stock ownership would
be attributed to such Employee pursuant to Section 424(d) of the Code)
would own shares and/or hold outstanding options to purchase shares
possessing five percent (5%) or more of the total combined voting power or
value of all classes of shares of the Company or of any subsidiary of the
Company, or (ii) the rate of withholding under such option would permit the
employee's rights to purchase shares under all employee stock purchase
plans (described in Section 423 of the Code) of the Company and its
subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds
Twenty-Five Thousand
-2-
<PAGE>
Dollars ($25,000) of fair market value of such shares (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time.
(c) Upon reemployment of a former Employee, such former Employee will
again be eligible to participate in the Plan, subject to the requirements
of Paragraph 5(a) and the limitations imposed by Section 423(b) of the
Code.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on or about each May 1 or November
1, provided, however, that the Offering Date of the initial Offering Period
shall be June 10, 1998. If the Company cannot make an offer under the Plan on or
about any May 1 or November 1 because of restrictions imposed by law, the
Company may make an offer as soon as practical after the expiration of such
restrictions. The Board or the Committee shall have the power to change the
duration of Offering Periods with respect to future offerings without
stockholder approval, if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions on the
form provided by the Company and filing it with the Company's payroll
office prior to the Offering Date of the first Offering Period with respect
to which it is to be effective, unless a later time for filing the
subscription agreement is set by the Board or Committee for all eligible
Employees with respect to such Offering Period. Once enrolled, the Employee
remains enrolled in each subsequent Offering Period of the Plan at the
designated payroll deduction unless the Employee withdraws by providing the
Company with a written Notice of Withdrawal or files a new subscription
agreement prior to the applicable Offering Date changing the Employee's
designated payroll deduction. An eligible Employee may participate in only
one Offering Period at a time.
(b) Payroll deductions for a participant shall commence with the first
payroll period following the Offering Date, or the first payroll following
the date of valid filing of the subscription agreement, whichever is later,
and shall end when terminated by the participant as provided in paragraph
10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each payday during
all subsequent Offering Periods at a rate not exceeding ten percent (10%),
or such other rate as may be determined from time to time by the Board, of
the Compensation which he or she would otherwise receive on such payday
without regard to deferral elections, provided that the aggregate of such
payroll deductions during any Offering Period shall not exceed ten percent
(10%), or such other percentage as may be determined from time to time by
the Board, of the aggregate Compensation which he or she would otherwise
have received during said Offering Period. Notwithstanding
-3-
<PAGE>
the foregoing, for the initial Offering Period commencing on June 10, 1998,
payroll deductions will not commence until the first payday following the
date that the registration statement for the initial public offering of the
Common Stock becomes or is declared effective by the Securities and
Exchange Commission under the Securities Act of 1933 (the "IPO Effective
Date"). The amount of initial payroll deductions in the period from June
10, 1998 to the IPO Effective Date will, upon authorization by the
participant, be deducted in two substantially equal payments during the
first two payroll periods immediately following the IPO Effective Date and,
thereafter, payroll deductions will be made at the rate authorized by the
participant in his or her initial subscription agreement.
(b) All payroll deductions authorized by a participant shall be
credited to his or her account under the Plan. A participant may not make
any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in paragraph 10, or may change the rate of his or her payroll
deductions during an Offering Period by completing and filing with the
Company a new authorization for payroll deduction, provided that the Board
may, in its discretion, impose reasonable and uniform restrictions on
participants' ability to change the rate of payroll deductions. The change
in rate shall be effective no later than fifteen (15) days following the
Company's receipt of the new authorization. A participant may decrease or
increase the amount of his or her payroll deductions as of the beginning of
an Offering Period by completing and filing with the Company, prior to the
beginning of such Offering Period, a new payroll deduction authorization.
(d) Notwithstanding the foregoing, to the extent necessary, but only
to such extent, to comply with Section 423(b)(8) of the Code and paragraph
3(b) herein, a participant's payroll deductions may be automatically
decreased to 0% at such time during any Exercise Period which is scheduled
to end in the current calendar year that the aggregate of all payroll
deductions accumulated with respect to the applicable Offering Period and
any other Offering Period ending within the same calendar year equals
$25,000. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the next
succeeding Exercise Period, unless terminated by the participant as
provided in paragraph 10.
7. GRANT OF OPTION.
(a) On each Offering Date, each participant shall be granted an option
to purchase on each Exercise Date (at the per share option price) a number
of full shares of Common Stock arrived at by dividing such participant's
total payroll deductions to be accumulated prior to such Exercise Date and
retained in the participant's account as of the Exercise Date by the lower
of (i) eighty-five percent (85%) of the fair market value of a share of
Common Stock at the Offering Date, or (ii) eighty-five percent (85%) of the
fair market value of a share of Common Stock at the Exercise Date;
provided, however, that the maximum number of shares a participant may
purchase during each Offering Period shall be determined by (i) dividing
$50,000 by the fair market value of a share of Common Stock on the Offering
Date or
-4-
<PAGE>
(ii) if less, by the "Maximum Cap" set for such Offering Period; and
provided further that such purchase shall be subject to the limitations set
forth in paragraphs 3(b) and 12 hereof. The "Maximum Cap" for each Offering
Period shall be the number of shares purchasable under the Plan during that
Offering Period with the maximum payroll deductions permitted by paragraph
6(a) hereof, based upon the fair market value of a share of Common Stock at
the beginning of the Offering Period. The fair market value of a share of
Common Stock shall be determined as provided in paragraph 7(b) herein.
(b) The option price per share of such shares shall be the lower of:
(i) eighty-five percent (85%) of the fair market value of a share of Common
Stock at the Offering Date; or (ii) eighty-five percent (85%) of the fair
market value of a share of Common Stock at the Exercise Date. The fair
market value of a share of Common Stock on said dates shall be determined
by the Board, based upon such factors as the Board determines relevant;
provided, however, that if there is a public market for the Common Stock,
the fair market value of a share of Common Stock on a given date shall be
the reported bid price for the Common Stock as of such date; or, in the
event that the Common Stock is listed on a national securities exchange,
the fair market value of a share of Common Stock shall be an amount equal
to the average of the high and low sales price of a share of Common Stock
on the exchange as of such date.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as
provided in paragraph 10, his or her option for the purchase of shares will
be exercised automatically at each Exercise Date, and the maximum number of
full shares subject to option will be purchased at the applicable option
price with the accumulated payroll deductions in his or her account. The
shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date.
(b) During his or her lifetime, a participant's option to purchase
shares hereunder is exercisable only by the participant.
(c) The Board may require, as a condition precedent to any purchase
under the Plan, appropriate arrangements with the participant for the
withholding of any applicable Federal, state, local or foreign withholding
or other taxes.
9. DELIVERY. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange for the shares purchased upon
exercise of his or her option to be electronically credited to the participant's
designated brokerage account at one of the securities brokerage firms
participating in the Company's direct deposit program from time to time. Any
cash remaining to the credit of a participant's account under the Plan after a
purchase by him or her of shares at the Exercise Date of each Offering Period
which merely represents a fractional share shall be credited to the
participant's account for the next subsequent Offering Period; any additional
cash shall be returned to said participant.
-5-
<PAGE>
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account under the Plan at any time prior
to an Exercise Date by giving written notice to the Company on a form
provided for such purpose. If the participant withdraws from the Offering
Period, all of the participant's payroll deductions credited to his or her
account will be paid to the participant as soon as practicable after
receipt of the notice of withdrawal and his or her option for the current
Offering Period will be automatically canceled, and no further payroll
deductions for the purchase of shares will be made during such Offering
Period or subsequent Offering Periods, except pursuant to a new
subscription agreement filed in accordance with paragraph 6 hereof.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to an Exercise Date of an Offering Period for any reason,
including retirement or death, the payroll deductions accumulated in his or
her account will be returned to him or her as soon as practicable after
such termination or, in the case of death, to the person or persons
entitled thereto under paragraph 14, and his or her option will be
automatically canceled.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during
an Offering Period in which the employee is a participant, he or she will
be deemed to have elected to withdraw from the Plan, and the payroll
deductions credited to his or her account will be returned to the
participant and the option canceled.
(d) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in a succeeding
Offering Period by executing and delivering to the Company a new payroll
deduction form or in any similar plan which may hereafter be adopted by the
Company.
11. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. In the event that the
fair market value of the Common Stock is lower on the first day of an Exercise
Period (the "Subsequent Exercise Period") than it was on the first Offering Date
for that Offering Period (the "Initial Offering Period"), all participants in
the Plan on the first day of the Subsequent Exercise Period shall be deemed to
have withdrawn from the Initial Offering Period on the first day of the
Subsequent Exercise Period and to have enrolled as participants in a new
Offering Period which begins on or about that day. A participant may elect to
remain in the Initial Offering Period by filing a written statement declaring
such election with the Company prior to the time of the automatic change to the
new Offering Period.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
-6-
<PAGE>
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in paragraph 19, the maximum number of shares of Common
Stock which shall be reserved for sale under the Plan shall be:
(i) 600,000 shares, plus an annual increase to be added on July 1
of each year beginning July 1, 1999 equal to the lesser of
(A) 0.5% of the total number of shares of Common Stock
outstanding on a fully diluted basis as of the immediately
preceding June 30, or
(B) 600,000 shares
provided, however, that at no time may the cumulative number of shares of
Common Stock subject to options granted pursuant to paragraph 7(a) hereof
since the inception of the Plan exceed 2% of the number of shares of Common
Stock outstanding on a fully diluted basis as of the last day of the most
recently completed calendar fiscal quarter of the Company. If the total
number of shares which would otherwise be subject to options granted
pursuant to paragraph 7(a) hereof on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform and equitable a manner
as is practicable. In such event, the Company shall give written notice of
such reduction of the number of shares subject to the option to each
participant affected thereby and shall return any excess funds accumulated
in each participant's account as soon as practicable after the affected
Exercise Date of such Offering Period. Common Stock to be sold to
participants in the Plan may be, at the election of the Company, either
treasury shares or shares authorized but unissued.
(b) A participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
credited electronically to a brokerage account in the name of the
participant at one of the brokerage firms participating from time to time
in the Company's direct deposit program.
14. ADMINISTRATION. The Plan shall be administered by the Board or the
Committee. The Board or the Committee shall have the authority to (i) make all
factual determinations in the administration or interpretation of the Plan, (ii)
establish administrative regulations to further the purpose of the Plan, and
(iii) take any other action desirable or necessary to interpret, construe or
implement properly the provisions of the Plan. The administration,
interpretation or application of the Plan by the Board or the Committee shall be
final, conclusive and binding upon all participants. Members of the Board or the
Committee who are eligible Employees are permitted to participate in the Plan,
provided that:
-7-
<PAGE>
(a) Members of the Board who participate in the Plan may not vote on
any matter affecting the administration of the Plan or the grant of any
option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member of
the Board who participates in the Plan may be a member of the Committee.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive shares and/or cash, if any, from the participant's account
under the Plan in the event of such participant's death at a time when cash
or shares are held for his or her account.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant
in the absence of a valid designation of a beneficiary who is living at the
time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant; or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may
reasonably designate.
16. RIGHTS NOT TRANSFERABLE. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees as soon
as practicable following each Exercise Date. Such statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common
-8-
<PAGE>
Stock covered by each option under the Plan which has not yet been exercised,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, stock dividend,
combination or reclassification of the Common Stock or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable, and the option will terminate upon the expiration of
such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION. The Board may at any time and for any reason
terminate or amend the Plan. Except as provided in paragraph 19 and this
paragraph 20, no such termination will affect options previously granted. Except
as provided in paragraph 19 and this paragraph 20, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. In addition, to the extent necessary, but only to such extent,
to comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law or regulation), the Company shall obtain stockholder
approval of an amendment in such a manner and to such a degree as so required.
In the event the Board determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
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<PAGE>
(1) altering the purchase price for any Offering Period including an
Offering Period underway at the time of the change in purchase price;
(2) shortening any Offering Period so that Offering Period ends on a
new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given electronically
by the Company will be deemed to be written notices under the Plan.
22. STOCKHOLDER APPROVAL. The Plan was adopted by the Board on May 22, 1998
and approved by the shareholders of the Company on May 22, 1998 in accordance
with the requirements of Section 423(b)(2) of the Code.
23. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
24. NO RIGHT TO EMPLOYMENT. Nothing shall confer upon any employee of the
Company any right to continued employment with the Company any right to
continued employment with the Company or interfere in any way with the right of
the Company to terminate the employment of any of its employees at any time,
with or without cause.
25. TERM OF PLAN. The Plan shall remain in effect until May 22, 2008,
unless terminated earlier in accordance with Paragraph 20.
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<PAGE>
26. GOVERNING LAW. All rights and obligations under the Plan shall be
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of laws.
-11-
<PAGE>
MIPS Technologies Inc. EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
EMPLOYEE LAST NAME FIRST NAME MI SOCIAL SECURITY # EMPLOYEE #
- -------------------------------------------------------------------------------------------------------------------------
DAYTIME TELEPHONE NUMBER OFFICE LOCATION
- -------------------------------------------------------------------------------------------------------------------------
|_| ORIGINAL APPLICATION |_| CHANGE
</TABLE>
1. I hereby elect to participate in each Offering Period of the MIPS
Technologies Inc. Employee Stock Purchase Plan (the "Plan") beginning
subsequent to the date set forth below and subscribe to purchase shares of
Common Stock of MIPS Technologies Inc. (the "Company") in accordance with
this Agreement and the Plan.
2. I hereby authorize payroll deductions from each paycheck during each
Offering Period in the amount of (1% to 10%, whole percentages only)
____________% of my compensation (including base pay and, to the extent
applicable, any amounts attributable to overtime, shift premium, incentive
compensation, bonuses and commissions) in accordance with the Plan.
3. I understand that payroll deductions will not begin until after the closing
date of the initial public offering of the Company's Common Stock (the
"Closing Date"). The Company will notify me when payroll deductions will
begin and I will be given the opportunity to withdraw from the Plan. If I
elect to continue participation in the Plan, payroll deductions for the
period from June 10, 1998 until the Closing Date will be made up in equal
installments over the first two payroll periods.
4. I understand that said payroll deductions shall be accumulated for the
purchase of shares in accordance with the Plan, and that shares will be
purchased for me automatically at the end of each six-month Exercise Period
unless I withdraw from the Plan by giving written notice to the Company. I
authorize the Company to carry over to the next Exercise Period or Offering
Period any Cash insufficient to purchase a share of Common Stock.
5. I have received a copy of the Company's most recent prospectus which
describes the Plan and a copy of the complete "MIPS Technologies Inc.
Employee Stock Purchase Plan." I understand that my participation in the
Plan is in all respects subject to the terms of the Plan.
6. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
7. In the event of my death, I hereby designate my beneficiary to receive all
payments and shares due me under the Plan.
8. I agree that the shares I purchase through the MIPS Technologies Inc.
Employee Stock Purchase Plan (ESPP) will be electronically transferred to a
brokerage firm for credit to an account set up under my name. Broker
selection will be forthcoming and be announced in an additional
communication.
- --------------------------------------- -------------------------
Employee Signature Date
- --------------------------------------- -------------------------
Human Resources Signature Date
PLEASE RETURN FORM TO Trish Leeper / HR
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MIPS TECHNOLOGIES, INC.
DIRECTORS' STOCK OPTION PLAN
(effective as of July 6, 1998)
1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan
are to attract and retain the best available personnel for service as Directors
of the Company, to provide additional incentive to the Outside Directors of the
Company to serve as Directors, and to encourage their continued service on the
Board.
All options granted hereunder shall be non-statutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Annual Meeting" means the Company's regularly scheduled annual
meeting of stockholders, as provided for in the Company's bylaws.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means MIPS Technologies, Inc., a Delaware corporation.
(f) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
(g) "Director" means a member of the Board.
(h) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") System, the Fair Market
Value of a Share of Common Stock shall be the closing sales price for
such stock or the closing bid,
<PAGE>
if no sales were reported, as quoted on such system or exchange (or
the exchange with the greatest volume of trading in Common Stock) on
the day of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, the
Fair Market Value of a Share of Common Stock shall be the mean between
the high and low asked prices for the Common Stock on the day of
determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Board.
(k) "Option" means a stock option granted pursuant to the Plan.
(l) "Optioned Stock" means the Common Stock subject to an Option.
(m) "Optionee" means an Outside Director who receives an Option.
(n) "Outside Director" means a Director who is not an Employee.
(o) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this Directors' Stock Option Plan.
(q) "Service Provider" means an Employee, Director or consultant of
the Company.
(r) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(s) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 600,000 Shares plus an annual increase to be added each year
on July 1 beginning on July 1, 1999 in an amount equal to the lesser of (i)
100,000 shares, (ii) the number of shares subject to option grants in the prior
year ending June 30 or (iii) a lesser number determined by the Board (the
"Pool") of Common Stock. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
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<PAGE>
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan shall
be administered by the Board, or by a compensation committee (the
"Committee") appointed by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
automatic and non-discretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 40,000 Shares (which number shall be subject to
adjustment in the manner set forth in Section 10 hereof upon the
occurrence of any event described therein) upon the date on which such
person first becomes a Director (an "Initial Grant"), whether through
election by the stockholders of the Company or by appointment by the
Board to fill a vacancy.
(iii) On the date of each Annual Meeting during the term of this
Plan, each Outside Director who has served as a Director for at least
the previous six (6) months shall automatically receive an Option to
purchase 10,000 Shares, which number shall be subject to adjustment in
the manner set forth in Section 10 hereof upon the occurrence of any
event described therein (a "Renewal Grant").
(iv) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years.
(B) the Option shall be exercisable only while the Outside
Director remains a Service Provider, except as set forth in
Section 8 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(D) the Initial Grant will vest and become exercisable as
follows:
24% of the Shares subject to the Option shall vest twelve
months after the Option's grant date, and 2% of the Shares
subject to the Option shall vest each month thereafter, subject
to the Outside Director continuing to be a Service Provider on
such dates.
(E) The Renewal Grants will vest and become exercisable as
to 2% of the Shares subject to such Option each month beginning
with the first month after the grant date, subject to the Outside
Director continuing to be a Service Provider on such dates.
-3-
<PAGE>
(v) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased upon exercise of Options to
exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors on
the automatic grant date. No further grants shall be made until such
time, if any, as additional Shares become available for grant under
the Plan through action of the stockholders to increase the number of
Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
(c) Powers of the Board. Subject to the provisions and restrictions of
the Plan, the Board or the Committee shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 2(j) of the Plan, the Fair Market Value of the
Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and
rescind rules and regulations relating to the Plan; (iv) to authorize any
person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted hereunder; and (v) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board or the Committee shall be final.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer on any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company
as described in Section 16 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for Optioned Stock
shall be 100% of the Fair Market Value per Share on the date of grant of
the Option.
(b) Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of: (i) cash,
(ii) check, (iii) promissory note, (iv) other shares which (x) in the case
of Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six (6) months on the date of surrender, or were not
acquired directly or indirectly from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the
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<PAGE>
aggregate exercise price of the Shares as to which said Option shall be
exercised, (v) authorization from the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the Option is exercised,
(vi) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (vii)
by delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the Optionee to take and pay for the Shares not more
than twelve (12) months after the date of delivery of the subscription
agreement, (viii) any combination of the foregoing methods of payment, or
(ix) such other consideration and method of payment for the issuance of
Shares to the extent permitted by applicable law.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be
exercisable until stockholder approval of the Plan in accordance with
Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(b) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must comply with
the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(c) Termination of Status as a Service Provider. If an Outside
Director ceases to be a Service Provider, he or she may, but only within
three (3) months after the date he or she ceases
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<PAGE>
to be a Service Provider, exercise an Option to the extent that he or she
was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised
after its five (5) year term has expired. To the extent that the Optionee
was not entitled to exercise an Option at the date of such termination, or
if the Optionee does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(d) Disability of Optionee. Notwithstanding the provisions of Section
8(c) above, in the event an Optionee is unable to continue as a Service
Provider as a result of the Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), he or she may, but only within
six (6) months from the date of termination, exercise an Option to the
extent that he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its five (5) year term has expired. To the extent that the
Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option (which he or
she was entitled to exercise) within the time specified herein, the Option
shall terminate.
(e) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within six (6) months following the
date of death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised
after its five (5) year term has expired.
9. Non-Transferability of Options . The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Liquidation or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding
Option or Right, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of Shares of stock of any
class, or securities convertible into Shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
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<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board. The Board may, in the exercise of
its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right
to exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the Option or equivalent option shall continue to be
exercisable as provided in Section 4 hereof for so long as the Optionee is
a Service Provider of the Company or of the Successor Corporation.
Following such assumption or substitution, if the Optionee's status as a
Service Provider of the Company or of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as
to Shares for which it would not otherwise be exercisable. Thereafter, the
Option or option shall remain exercisable in accordance with Sections 8(c)
through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension,
or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without
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<PAGE>
his or her consent. In addition, to the extent necessary and desirable to
comply with any applicable law or regulation, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option or Right
shall, for all purposes, be the date determined in accordance with Section 4(b)
hereof. Notice of the determination shall be given to each Outside Director to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders subsequent to the granting of an Option hereunder. Such
stockholder approval shall be obtained in the manner and to the degree required
under applicable state and federal law.
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MIPS TECHNOLOGIES, INC.
NON-U.S. STOCK PURCHASE PLAN
The following constitutes the provisions of the MIPS Technologies, Inc.
Non-U.S. Stock Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide non-U.S. employees and
consultants of the Company and its Designated Subsidiaries with an opportunity
to purchase Common Stock of the Company through cash contributions. It is
believed that employee participation in ownership of the Company on this basis
will be to the mutual benefit of the employees, consultants and the Company.
2. DEFINITIONS.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock, $0.001 par value, of the
Company.
"Company" means MIPS Technologies, Inc.
"Committee" means the committee appointed by and serving at the
pleasure of the Board to administer the Plan pursuant to Section 14.
"Compensation" means base pay and consulting fees, plus any amounts
attributable to overtime, shift premium, incentive compensation, bonuses
and commissions (exclusive of "spot bonuses" and any other such item
specifically directed for all Employees by the Board or a committee),
designated by the Board, but shall exclude severance pay, pay in lieu of
vacations, back pay awards, disability benefits, deferred compensation, or
any other compensation excluded in the discretion of the Board.
Compensation shall be determined before giving effect to any salary
reduction agreement pursuant to a qualified cash or deferred arrangement
within the meaning of Section 401(k) of the Code or to any similar
reduction agreement pursuant to any cafeteria plan (within the meaning of
Section 125 of the Code).
"Consultant" means any person, including an advisor, engaged by the
Company or a parent or Designated Subsidiary to render services to such
entity.
"Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of a leave of absence
<PAGE>
agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or re-employment upon the expiration of
such leave is guaranteed by contract or statute.
"Contributions" means an Employee's payroll deduction, a Consultant's
invoice deductions or any participant's cash contributions made to the Plan
during an Offering Period in order to purchase shares.
"Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
"Employee" means any person, including an officer, who is employed by
the Company or one of its Designated Subsidiaries.
"Exercise Date" means the last business day of each Exercise Period in
an Offering Period.
"Exercise Period" means a six-month period commencing on an Offering
Date or on the first business day after any Exercise Date in an Offering
Period.
"Offering Date" means the first day of each Offering Period of the
Plan.
"Offering Period" means a period of twenty-four (24) months consisting
of four six-month Exercise Periods during which options granted pursuant to
the Plan may be exercised.
"Plan" means the MIPS Technologies, Inc. Employee Stock Purchase Plan.
"Subsidiary" means any corporation, domestic or foreign, in which the
Company owns, directly or indirectly, 50% or more of the voting shares.
3. ELIGIBILITY.
(a) Any person who is an Employee or Consultant, as defined in
paragraph 2, on the Offering Date of a given Offering Period (or as
otherwise determined by the Board or the Committee ) shall be eligible to
participate in such Offering Period under the Plan, subject to the
requirements of paragraph 5(a) and the limitations imposed by Section
423(b) of the Code.
(b) Notwithstanding any provisions of the Plan to the contrary, no
Employee or Consultant shall be granted an option under the Plan if (i)
immediately after the grant, such Employee or Consultant (or any other
person whose stock ownership would be attributed to such Employee or
Consultant pursuant to Section 424(d) of the Code) would own shares and/or
hold outstanding options to purchase shares possessing five percent (5%) or
more of the total combined voting power or value of all classes of shares
of the Company or of any subsidiary of the Company, or (ii) the rate of
Contributions under such option would permit the employee's or consultant's
rights to purchase shares under all stock purchase plans (including those
described in Section 423 of the
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<PAGE>
Code) of the Company and its subsidiaries to accrue (i.e., become
exercisable) at a rate which exceeds Twenty-Five Thousand Dollars ($25,000)
of fair market value of such shares (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any
time.
(c) Upon reemployment of a former Employee, such former Employee will
again be eligible to participate in the Plan, subject to the requirements
of Paragraph 5(a) and the limitations imposed by Section 423(b) of the
Code.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on or about each May 1 or November
1, provided, however, that the Offering Date of the initial Offering Period
shall be June 10, 1998. If the Company cannot make an offer under the Plan on or
about any May 1 or November 1 because of restrictions imposed by law, the
Company may make an offer as soon as practical after the expiration of such
restrictions. The Board or the Committee shall have the power to change the
duration of Offering Periods with respect to future offerings without
stockholder approval, if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee or Consultant may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions
or Consultant's invoice deductions on the form provided by the Company and
filing it with the Company's payroll office or other appropriate department
of the Company prior to the Offering Date of the first Offering Period with
respect to which it is to be effective, unless a later time for filing the
subscription agreement is set by the Board or Committee with respect to
such Offering Period. In addition, the Board or Committee may allow a
participant to pay by check in addition to or in substitution for payroll
or invoice deductions; provided, however, that the aggregate Contributions
for the Offering Period and each Exercise Period is not in excess of 10
percent (10%) of the participant's Compensation for the relevant period.
Once enrolled, the Employee or Consultant remains enrolled in each
subsequent Offering Period of the Plan at the designated deduction amount
unless the Employee or Consultant withdraws by providing the Company with a
written Notice of Withdrawal or files a new subscription agreement prior to
the applicable Offering Date changing the Employee's or Consultant's
designated payroll or invoice deduction. An eligible Employee or Consultant
may participate in only one Offering Period at a time.
(b) Payroll or invoice deductions for a participant shall commence
with the first payroll period following the Offering Date, or the first
payroll following the date of valid filing of the subscription agreement,
or the first invoice submitted after the valid filing of the subscription
agreement, whichever is later, and shall end when terminated by the
participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS.
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<PAGE>
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll or invoice deductions made on each
payday during all subsequent Offering Periods at a rate not exceeding ten
percent (10%), or such other rate as may be determined from time to time by
the Board, of the Compensation which he or she would otherwise receive
during such Offering Period without regard to deferral elections, provided
that the aggregate Contributions during any Offering Period and any
Exercise Period shall not exceed ten percent (10%), or such other
percentage as may be determined from time to time by the Board, of the
aggregate Compensation which he or she would otherwise have received during
said Offering Period. Notwithstanding the foregoing, for the initial
Offering Period commencing on June 10, 1998, payroll deductions will not
commence until the first payday following the date that the registration
statement for the initial public offering of the Common Stock becomes or is
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933 (the "IPO Effective Date"). The amount of initial
payroll or invoice deductions in the period from June 10, 1998 to the IPO
Effective Date will, upon authorization by the participant, be deducted in
two substantially equal payments during the first two payroll periods
immediately following the IPO Effective Date and, thereafter, payroll or
invoice deductions will be made at the rate authorized by the participant
in his or her initial subscription agreement.
(b) All Contributions authorized by a participant shall be credited to
his or her account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in paragraph 10, or may change the rate of his or her
Contributions during an Offering Period by completing and filing with the
Company a new authorization for a new level of Contributions, provided that
the Board may, in its discretion, impose reasonable and uniform
restrictions on participants' ability to change the rate of Contributions.
The change in rate shall be effective no later than fifteen (15) days
following the Company's receipt of the new authorization. A participant may
decrease or increase the amount of his or her Contributions as of the
beginning of an Offering Period by completing and filing with the Company,
prior to the beginning of such Offering Period, a new subscription
agreement.
(d) Notwithstanding the foregoing, to the extent necessary, but only
to such extent, to comply with Section 423(b)(8) of the Code and paragraph
3(b) herein, a participant's rate of Contributions may be automatically
decreased to 0% at such time during any Exercise Period which is scheduled
to end in the current calendar year that the aggregate of all a
participant's Contributions accumulated with respect to the applicable
Offering Period and any other Offering Period ending within the same
calendar year equals $25,000. Contributions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of
the next succeeding Exercise Period, unless terminated by the participant
as provided in paragraph 10.
7. GRANT OF OPTION.
(a) On each Offering Date (or on such later date specifically
authorized by the Board or the Committee), each participant shall be
granted an option to purchase on each Exercise
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<PAGE>
Date (at the per share option price) a number of full shares of Common
Stock arrived at by dividing such participant's total Contributions to be
accumulated prior to such Exercise Date and retained in the participant's
account as of the Exercise Date by the lower of (i) eighty-five percent
(85%) of the fair market value of a share of Common Stock at the Offering
Date, or (ii) eighty-five percent (85%) of the fair market value of a share
of Common Stock at the Exercise Date; provided, however, that the maximum
number of shares a participant may purchase during each Offering Period
shall be determined by (i) dividing $50,000 by the fair market value of a
share of Common Stock on the Offering Date or (ii) if less, by the "Maximum
Cap" set for such Offering Period; and provided further that such purchase
shall be subject to the limitations set forth in paragraphs 3(b) and 12
hereof. The "Maximum Cap" for each Offering Period shall be the number of
shares purchasable under the Plan during that Offering Period with the
maximum Contributions permitted by paragraph 6(a) hereof, based upon the
fair market value of a share of Common Stock at the beginning of the
Offering Period. The fair market value of a share of Common Stock shall be
determined as provided in paragraph 7(b) herein.
(b) The option price per share of such shares shall be the lower of:
(i) eighty-five percent (85%) of the fair market value of a share of Common
Stock at the Offering Date; or (ii) eighty-five percent (85%) of the fair
market value of a share of Common Stock at the Exercise Date. The fair
market value of a share of Common Stock on said dates shall be determined
by the Board, based upon such factors as the Board determines relevant;
provided, however, that if there is a public market for the Common Stock,
the fair market value of a share of Common Stock on a given date shall be
the reported bid price for the Common Stock as of such date; or, in the
event that the Common Stock is listed on a national securities exchange,
the fair market value of a share of Common Stock shall be the closing sales
price of a share of Common Stock on the exchange as of such date.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as
provided in paragraph 10, his or her option for the purchase of shares will
be exercised automatically at each Exercise Date, and the maximum number of
full shares subject to option will be purchased at the applicable option
price with the accumulated payroll or invoice deductions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Exercise Date.
(b) During his or her lifetime, a participant's option to purchase
shares hereunder is exercisable only by the participant.
(c) The Board may require, as a condition precedent to any purchase
under the Plan, appropriate arrangements with the participant for the
withholding of any applicable Federal, state, local or foreign withholding
or other taxes.
9. DELIVERY. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange for the shares purchased upon
exercise of his or her option to be
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<PAGE>
electronically credited to the participant's designated brokerage account at one
of the securities brokerage firms participating in the Company's direct deposit
program from time to time. Any cash remaining to the credit of a participant's
account under the Plan after a purchase by him or her of shares at the Exercise
Date of each Offering Period which merely represents a fractional share shall be
credited to the participant's account for the next subsequent Offering Period;
any additional cash shall be returned to said participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the
Contributions credited to his or her account under the Plan at any time
prior to an Exercise Date by giving written notice to the Company on a form
provided for such purpose. If the participant withdraws from the Offering
Period, all of the participant's Contributions credited to his or her
account will be paid to the participant as soon as practicable after
receipt of the notice of withdrawal and his or her option for the current
Offering Period will be automatically canceled, and no further
Contributions for the purchase of shares will be allowed during such
Offering Period or subsequent Offering Periods, except pursuant to a new
subscription agreement filed in accordance with paragraph 6 hereof.
(b) Upon termination of the participant's Continuous Status as an
Employee or Consultant prior to an Exercise Date of an Offering Period for
any reason, including retirement or death, the Contributions accumulated in
his or her account will be returned to him or her as soon as practicable
after such termination or, in the case of death, to the person or persons
entitled thereto under paragraph 14, and his or her option will be
automatically canceled.
(c) In the event an Employee or Consultant fails to remain in
Continuous Status as an Employee or Consultant of the Company for at least
twenty (20) hours per week during an Offering Period in which the employee
or consultant is a participant, he or she will be deemed to have elected to
withdraw from the Plan, and the Contributions credited to his or her
account will be returned to the participant and the option canceled.
(d) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in a succeeding
Offering Period by executing and delivering to the Company a new
subscription agreement or in any similar plan which may hereafter be
adopted by the Company.
11. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. In the event that the
fair market value of the Common Stock is lower on the first day of an Exercise
Period (the "Subsequent Exercise Period") than it was on the first Offering Date
for that Offering Period (the "Initial Offering Period"), all participants in
the Plan on the first day of the Subsequent Exercise Period shall be deemed to
have withdrawn from the Initial Offering Period on the first day of the
Subsequent Exercise Period and to have enrolled as participants in a new
Offering Period which begins on or about that day. A participant may elect to
remain in the Initial Offering Period by filing a written statement declaring
such election with the Company prior to the time of the automatic change to the
new Offering Period.
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<PAGE>
12. INTEREST. No interest shall accrue on the payroll or invoice deductions
of a participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in paragraph 19, the maximum number of shares of Common
Stock which shall be reserved for sale under the Plan shall be 60,000
shares.
If the total number of shares which would otherwise be subject to options
granted pursuant to paragraph 7(a) hereof on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform and equitable a manner as is
practicable. In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each participant
affected thereby and shall return any excess funds accumulated in each
participant's account as soon as practicable after the affected Exercise Date of
such Offering Period. Common Stock to be sold to participants in the Plan may
be, at the election of the Company, either treasury shares or shares authorized
but unissued.
(b) A participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
credited electronically to a brokerage account in the name of the
participant at one of the brokerage firms participating from time to time
in the Company's direct deposit program.
14. ADMINISTRATION. The Plan shall be administered by the Board or the
Committee. The Board or the Committee shall have the authority to (i) make all
factual determinations in the administration or interpretation of the Plan, (ii)
establish administrative regulations to further the purpose of the Plan, and
(iii) take any other action desirable or necessary to interpret, construe or
implement properly the provisions of the Plan. The administration,
interpretation or application of the Plan by the Board or the Committee shall be
final, conclusive and binding upon all participants. Members of the Board or the
Committee who are eligible Employees are permitted to participate in the Plan,
provided that:
(a) Members of the Board who participate in the Plan may not vote on
any matter affecting the administration of the Plan or the grant of any
option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member of
the Board who participates in the Plan may be a member of the Committee.
15. DESIGNATION OF BENEFICIARY.
-7-
<PAGE>
(a) A participant may file a written designation of a beneficiary who
is to receive shares and/or cash, if any, from the participant's account
under the Plan in the event of such participant's death at a time when cash
or shares are held for his or her account.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant
in the absence of a valid designation of a beneficiary who is living at the
time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant; or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may
reasonably designate.
16. RIGHTS NOT TRANSFERABLE. Neither Contributions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
17. USE OF FUNDS. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees as soon
as practicable following each Exercise Date. Such statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, stock dividend, combination or
reclassification of the Common Stock or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to option.
-8-
<PAGE>
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation
(the "Successor Corporation"). In the event that the Successor Corporation
refuses to assume or substitute for the option, any Exercise Periods then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date") and any Offering Periods then in progress shall end on the New Exercise
Date. The New Exercise Date shall be before the date of the Company's proposed
sale or merger. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION. The Board may at any time and for any reason
terminate or amend the Plan. Except as provided in paragraph 19 and this
paragraph 20, no such termination will affect options previously granted. Except
as provided in paragraph 19 and this paragraph 20, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant.
In the event the Board determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(a) altering the purchase price for any Offering Period including an
Offering Period underway at the time of the change in purchase price;
(b) shortening any Offering Period so that Offering Period ends on a
new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(c) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
-9-
<PAGE>
21. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given electronically
by the Company will be deemed to be written notices under the Plan.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
23. NO RIGHT TO EMPLOYMENT. Nothing shall confer upon any employee or
consultant of the Company any right to continued employment or consultancy with
the Company or interfere in any way with the right of the Company to terminate
the employment or consultancy of any of its employees or consultants at any
time, with or without cause.
24. TERM OF PLAN. The Plan shall remain in effect until terminated in
accordance with Paragraph 20.
25. GOVERNING LAW. All rights and obligations under the Plan shall be
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of laws.
-10-
<PAGE>
MIPS Technologies Inc. NON-U.S. EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
EMPLOYEE LAST NAME FIRST NAME MI SOCIAL SECURITY # EMPLOYEE #
- -------------------------------------------------------------------------------------------------------------------------
DAYTIME TELEPHONE NUMBER OFFICE LOCATION
- -------------------------------------------------------------------------------------------------------------------------
|_| ORIGINAL APPLICATION |_| CHANGE
</TABLE>
1. I hereby elect to participate in each Offering Period of the MIPS
Technologies Inc. Non-U.S. Employee Stock Purchase Plan (the "Plan")
beginning subsequent to the date set forth below and subscribe to purchase
shares of Common Stock of MIPS Technologies Inc. (the "Company") in
accordance with this Agreement and the Plan.
2. I hereby authorize payroll and/or invoice deductions from each paycheck
and/or invoice during each Offering Period in the amount of (1% to 10%,
whole percentages only) ____________% of my compensation (including base
pay, consulting fees and, to the extent applicable, any amounts
attributable to overtime, shift premium, incentive compensation, bonuses
and commissions) in accordance with the Plan.
3. I understand that the deductions will not begin until after the closing
date of the initial public offering of the Company's Common Stock (the
"Closing Date"). The Company will notify me when payroll deductions will
begin and I will be given the opportunity to withdraw from the Plan. If I
elect to continue participation in the Plan, payroll deductions for the
period from June 10, 1998 until the Closing Date will be made up in equal
installments over the first two payroll periods.
4. I understand that said deductions shall be accumulated for the purchase of
shares in accordance with the Plan, and that shares will be purchased for
me automatically at the end of each six-month Exercise Period unless I
withdraw from the Plan by giving written notice to the Company. I authorize
the Company to carry over to the next Exercise Period or Offering Period
any cash insufficient to purchase a share of Common Stock.
5. I have received a copy of the Company's most recent prospectus which
describes the Plan and a copy of the complete "MIPS Technologies Inc.
Employee Stock Purchase Plan." I understand that my participation in the
Plan is in all respects subject to the terms of the Plan.
6. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
7. In the event of my death, I hereby designate my beneficiary to receive all
payments and shares due me under the Plan.
8. I agree that the shares I purchase through the MIPS Technologies Inc.
Employee Stock Purchase Plan (ESPP) will be electronically transferred to a
brokerage firm for credit to an account set up under my name. Broker
selection will be forthcoming and be announced in an additional
communication.
- ------------------------------------------- ------------------------------
Employee Signature Date
- ------------------------------------------- ------------------------------
Employee Signature Date
PLEASE RETURN FORM TO Trish Leeper / HR
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE
PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 913
<PP&E> 8,411
<DEPRECIATION> (5,624)
<TOTAL-ASSETS> 4,696
<CURRENT-LIABILITIES> 5,443
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> (783)
<TOTAL-LIABILITY-AND-EQUITY> 4,696
<SALES> 56,810
<TOTAL-REVENUES> 56,810
<CGS> 375
<TOTAL-COSTS> 375
<OTHER-EXPENSES> 56,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 376
<INCOME-TAX> 0
<INCOME-CONTINUING> 376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
